Rather belatedly, Rbi finally increases CRR and Repo rate!

As Fed chief is attempting at talking interest rates and the Dollar up , while not taking any on ground action, he is loosing credibility by the day. He is attempting to cool of the inflation in the Us economy, and attempting rather desperately to protect the Housing markets and the large bond insurers like MBIA and Ambac at the same time. It seems like Rbi is finally decoupling from this policy thanks to the shocking 11.05% inflation figure in India.

Read Fed chief in a bind.

Rbi which has postponed the long expected rate hike, thanks to the pressure from the ministry, just bit the bullet, Gov. Reddy’s talk with the FM and the PM over the weekend. Rbi finally announced a Hike in the CRR and the Repo Rate by 50 basis points each , and this i think is just the beginning.

CRR : Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI.

REPO Rate: The rate at which the central bank borrows money to suck out short-term liquidity from the system.

Net Effect of Shock Therapy…..(didnt i expect one ? )

Expect more rate increases in August if international oil prices remain in the current price range ….. Else there is some deep shit, waiting for the economy to face.

Expect an increase in the PLR or Prime lending rates of banks and of Fixed Deposit Interest rates by at least half to 1%, especially in the short term.

Expect bond prices to go down and yields to go above 10% pa.

Expect personal loan rates to go up at least by one % , expect loan rates especially home loan rates to be pushed by at least half percent in the medium term say by August.

Expect the growth figures of corporates to get affected and the Stock market to open Gap Down tomorrow and negative stock market sentiment. ( Big FALL in Stock Markets Ahead )

Expect the Govt to battle for its survival and put the Pms pet project – the Nuke deal to be put back in the freezer.

Related Reading :

Indian Inflation at 10% and Climbing..

Indian Inflation at 11.05% a 13yr high

Mid Month Musings May 2008 …part 1.

WPI Inflation in India at 7% and climbing?

Inflation in India is ‘artificially suppressed’ says the RBI

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5 thoughts on “Rather belatedly, Rbi finally increases CRR and Repo rate!

  1. i don’t get it…if this cud’ve been handled, y dint rbi push this step earlier.
    wot exactly were the roadblocks

  2. i speculate – roadblocks were political in nature, because interest rate increases effect growth rate figures and the fm loves numbers

  3. arvind , today the mkt started bad breaking the may 2007 low of 13771 and corrected upwards between 13736.01 – 14247.16 due to profit bkg short term worse is over if oil goes down mkts can go up but this govt is shaky so god knows
    13100 + is possible worst case between 12400 and 12600 are major major resistances

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