- Wealth PMS (50L+)
Short Answer: Only Rajan Knows.
Long Answer: Only Rajan Knows, and it’s useless to predict it.
The pieces of data that Rajan will use are what we’ve seen recently, and I’ll post some charts to help.
From: Jun 2013 GDP at 4.4%, Might Actually Show Recession
And even that is skewed:
From: WPI Inflation at 6.1%, and CPI Inflation at 9.5% for Aug 2013.
From: My IIP Post
Banks have to now maintain a minimum of 99% of CRR needs with the RBI (up from average of 100% but minimum of 70%). Since banks don’t have very good real time information systems (and can’t really organize cash in the same time that cash can be taken away from them through RTGS or NEFT) banks put in a lot more cash than required.
I believe that:
Banks are in dangerous territory. Very volatile, and they’ve moved up a lot recently. So there are some positive expectations. At best, they might go up another 1-2%, because the GDP growth slowdown will still impact them. If rates are hiked or there is status quo on the other fronts, banks will be negatively hit.
Overall, my money has been in ultra short term funds, investing in the short end of the curve. That might have to change if there is a move to make the yield curve normal again, but even then I see ultra-short terms as the way ahead for at least three months more.
Let’s see what surprises the RBI governor has in store. The biggest surprise might just be that he says nothing since this is a mid-quarter review (the real policy will be out only in October).