The focus is on how the RBI quarterly monetary policy will look like and especially, what will happen to the rates in the monetary system. There is ample speculation with respect to the repo and the reverse repo rates.
The expectation of a rate cut to boost the slowing economy was evident in the stock market rally (speculation knows no bounds; well, this is for another blog).
The key question is: will a rate cut at this stage help?
The WPI inflation (for June 2012) is at 7.25% and the all India inflation based on CPI new series (2010=100) for June 2012 about 10%; both the trade deficit (difference between monetary values of exports and imports) and the current account deficit (which includes trade deficit, net international income and expenses, expatriate remittances and foreign aid) are growing as well; the GDP growth rate is contracting.
The repo rate (the rate at which RBI lends to banks) is at 8% and reverse repo rate (the rate at which RBI pays banks when they deposit funds) is at 7%. Cash reserve ratio (the proportion of deposits banks have to keep with RBI) is at 4.75% and the statutory liquidity ratio (SLR - minimum holding of deposits in government bonds, gold and cash) is at 24%.
Any downside move in the rates will boost the economy but will impact the inflation severely, a situation we cannot afford right now. Increase in rates is not an option either.
A better option would be drastic policy actions (infrastructure, energy, subsidies, foreign investments, ...) by the government which should improve the economy.
The expectation of a rate cut to boost the slowing economy was evident in the stock market rally (speculation knows no bounds; well, this is for another blog).
The key question is: will a rate cut at this stage help?
The WPI inflation (for June 2012) is at 7.25% and the all India inflation based on CPI new series (2010=100) for June 2012 about 10%; both the trade deficit (difference between monetary values of exports and imports) and the current account deficit (which includes trade deficit, net international income and expenses, expatriate remittances and foreign aid) are growing as well; the GDP growth rate is contracting.
The repo rate (the rate at which RBI lends to banks) is at 8% and reverse repo rate (the rate at which RBI pays banks when they deposit funds) is at 7%. Cash reserve ratio (the proportion of deposits banks have to keep with RBI) is at 4.75% and the statutory liquidity ratio (SLR - minimum holding of deposits in government bonds, gold and cash) is at 24%.
Any downside move in the rates will boost the economy but will impact the inflation severely, a situation we cannot afford right now. Increase in rates is not an option either.
A better option would be drastic policy actions (infrastructure, energy, subsidies, foreign investments, ...) by the government which should improve the economy.
