Wednesday, October 30, 2013

High likelihood of another 50 bps tightening in repo rate: Edelweiss

The Reserve Bank of India (RBI) has hiked repo rate by 25 bps to 7.75% and reduced MSF rate by 25 bps to 8.75%. The central bank has retained CRR at 4%. It has also increased the liquidity provided through term repos of 7-day and 14-day tenor from 0.25% of NDTL of the banking system to 0.5%.

Commenting on the policy, Edelweiss Securities said, \'\'The Reserve Bank of India (RBI) in its quarterly review of the monetary policy, in a largely expected move, raised repo rate by 25bps to 7.75% and reduced the Marginal Standing Facility (MSF) rate by 25bps to 8.75%. However, guidance continues to remain hawkish stating that it is important to \'\'break the spiral of rising prices pressure in order to curb the erosion in financial savings and strengthen the foundations of growth.\'\' Besides, it appears that CPI is gaining importance in the policy response function.\'\'

\'\'Given this and the fact that inflation will continue to remain above comfort zone, we believe there is high likelihood of another 50bps tightening in repo rate in balance FY14, with 25bps expected in December policy. However, we do believe that the apex bank will liberalize the cap on LAF repo borrowing so as to make it a fully operative policy rate,\'\' it added.

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