- Wealth PMS
In it’s quarterly monetary policy, the Reserve Bank of India hiked the Cash Reserve Ratio (CRR) of banks to 5.75%. That much percentage of deposits will now need to be kept aside in cash (can’t be lent out, or used for other purposes). RBI says this will take out 36,000 crore of liquidity from the system.
The CRR comes in two phases – a 0.50% increase on Feb 13 and the remaining 25 basis points on Feb 27. The Repo rate (4.75%) and Reverse Repo (3.25%) are left unchanged.
Interestingly, here’s the project path of inflation in the next quarter.
With expected inflation at 8%, and interest rates at 5-6% we already have a big negative real rate; in fact, if you are now getting less than 8% interest on your deposits you’re losing money. Hopefully the next crop will be good and food inflation – a major part of both WPI and CPI – will stabilize to 6% or so. But with growth estimates like this:
Growth at 7.5% will demand inflation follow at nearly that level.
Stock markets recovered by the end of the day after opening about 2% down. They ended flat, though at the end of a week that has seen carnage after carnage, flat is the new “up”. The next week is likely to be just as exciting – a dangerous word when it comes to stock markets – as this one.
In other news: the 3G auctions have been moved to the next fiscal year. That is another 35,000 crore that the RBI will have to raise from the markets; but going by recent auctions it should be a breeze. The 10 year bond – the 2020 bond is now a lot more liquid than that 2019 bond – is trading flat at the 7.58% levels, and even here, flat is the new up.
But if they could collect from Hassan Ali Khan, a “real estate consultant” – that’s 50,000 crores in one take and should easily bridge some of that fiscal deficit. (Mint’s “Top Defaulter’s List” in “Taxpayers in Mumbai owe Rs. 1.35 trillion”)
The scale of the frauds on the left (on the right are honourable companies) is staggering.
Meanwhile, get ready: for no reason banks will raise rates even though their retail interest rates are 2x the repo rate – a rate they haven’t availed for the last full year because they’re flush with funds.