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RBI Monetary Policy Review, 17th June 13

RBI Monetary Policy Review, 17th June 13

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Published by Angel Broking
17th June, 2013
17th June, 2013

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Published by: Angel Broking on Jun 17, 2013
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Mid-Quarter Monetary Policy Review
 
Monday | June 17, 2013
 
www.angelcommodities.com
 
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Content 
RBI silent on interest ratesChallenge for the Indian EconomyIndian Economic ScenarioWorld Currency Markets
Angel Commodities Broking Pvt. Ltd.
Registered Office: G-1, Ackruti Trade Centre, Rd. No. 7, MIDC, Andheri (E), Mumbai - 400 093.Corporate Office: 6th Floor, Ackruti Star, MIDC, Andheri (E), Mumbai - 400 093. Tel: (022) 2921 2000CX Member ID: 12685 / FMC Regn No: MCX / TCM / CORP / 0037 NCDEX : Member ID 00220 / FMC Regn No: NCDEX / TCM / CORP / 0302
Disclaimer:
The information and opinions contained in the document have been compiled from sources believed to be reliable. The company does not warrant its accuracy,completeness and correctness. The document is not, and should not be construed as an offer to sell or solicitation to buy any commodities. This document may not bereproduced, distributed or published, in whole or in part, by any recipient hereof for any purpose without
prior permission from “Angel Commodities Broking (P) Ltd”. Your
feedback is appreciated on 
Reena RohitChief ManagerNon-Agri Commodities and Currencies
reena.rohit@angelbroking.com(022) 3935 8134 
 
 
Mid-Quarter Monetary Policy Review
 
Monday | June 17, 2013
 
www.angelcommodities.com
 
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Repo Rate 7.25%Reverse Repo Rate 6.25 %Cash Reserve Ratio 4%Bank Rate 8.25% 
Reserve Bank of India
 –
Silent on Interest Rates
Citing growth-inflation dynamics and recent developments in the externalsector, the Reserve Bank of India (RBI) kept interest rates unchanged asexpected. Indications for further changes in interest rates in the July
13policy are currently mute but may change over time, given that themonsoon this year is expected to be normal, thus reducing the supply-sidepressure and thereby easing inflation. This scenario would lead to the RBI reducing rates in order toboost growth. In the current policy, the central bank faced pressure from two sides i.e. either to boostgrowth by lowering interest rates or tackle inflation, which is an existing issue especially due to theweaker Rupee, which is leading to increase in costs of commodity imports.Fall in the WPI to 4.7 percent has not been a strong enough factor for the central bank to reduceinterest rates as food inflation remains high. While factors like distribution and supply of food areaffecting food inflation, measures to tackle the same need to be introduced. A good monsoon progresson a pan-India scale ahead of time will help to bring down food inflation in the coming months.Developments on the external sector front, being one of the major factors that drove the RBI
s decision,need to be looked at closely. Sharp depreciation in the Rupee along with a widening of the trade deficitdue to a surge in gold imports has restricted interest rate cuts by the RBI.In its review, the central bank has indicated that the key to boosting economic growth could be donethrough increasing investment by creating a favorable and conducive environment for privateinvestment, improving project clearance and raising the role of public investment.This move by the RBI has largely dampened sentiments at a time when the world economy is suddenlywitnessing a slowdown in growth momentum. Recent measures in order to reduce the Current AccountDeficit (CAD) by way of curbing gold imports through restricting its supply and increasing customs duty,it looks like the RBI is using indirect measures to reduce economic hurdles and is also applying the samestrategy to boost economic growth.
In each of its policy reviews in the past, the RBI had cut interest rates to boost growth.
8.57696.54.756.758.57.25
4.25.26.27.28.29.210.2
       2      7   -       0       4   -       2       0       0       1       2       8   -       0      5   -       2       0       0       1       2       3   -       1       0   -       2       0       0       1       2       8   -       0       3   -       2       0       0       2       3       0   -       1       0   -       2       0       0       2       3   -       0       3   -       2       0       0       3       1       9   -       0       3   -       2       0       0       3       2      5   -       0       8   -       2       0       0       3       2      7   -       1       0   -       2       0       0       4       2       6   -       1       0   -       2       0       0      5       8   -       0       6   -       2       0       0       6       3       1   -       1       0   -       2       0       0       6       3       1   -       0       3   -       2       0       0      7       2      5   -       0       6   -       2       0       0       8       2       0   -       1       0   -       2       0       0       8       8   -       1       2   -       2       0       0       8      5   -       0       3   -       2       0       0       9       1       9   -       0       3   -       2       0       1       0       2   -       0      7   -       2       0       1       0       1       6   -       0       9   -       2       0       1       0       2      5   -       0       1   -       2       0       1       1       3   -       0      5   -       2       0       1       1       2       6   -       0      7   -       2       0       1       1       2      5   -       1       0   -       2       0       1       1       1      7   -       0       4   -       2       0       1       2       1       9   -       0       3   -       2       0       1       3       1      7   -       0       6   -       2       0       1       3
Repo Rate (%)
6.55.54.5663.255.257.56.25
33.544.555.566.577.58
       2      7   -       0       4   -       2       0       0       1       2       8   -       0      5   -       2       0       0       1       2       3   -       1       0   -       2       0       0       1       2       8   -       0       3   -       2       0       0       2       3       0   -       1       0   -       2       0       0       2       3   -       0       3   -       2       0       0       3       1       9   -       0       3   -       2       0       0       3       2      5   -       0       8   -       2       0       0       3       2      7   -       1       0   -       2       0       0       4       2       6   -       1       0   -       2       0       0      5       8   -       0       6   -       2       0       0       6       3       1   -       1       0   -       2       0       0       6       3       1   -       0       3   -       2       0       0      7       2      5   -       0       6   -       2       0       0       8       2       0   -       1       0   -       2       0       0       8       8   -       1       2   -       2       0       0       8      5   -       0       3   -       2       0       0       9       1       9   -       0       3   -       2       0       1       0       2   -       0      7   -       2       0       1       0       1       6   -       0       9   -       2       0       1       0       2      5   -       0       1   -       2       0       1       1       3   -       0      5   -       2       0       1       1       2       6   -       0      7   -       2       0       1       1       2      5   -       1       0   -       2       0       1       1       1      7   -       0       4   -       2       0       1       2       1       9   -       0       3   -       2       0       1       3       1      7   -       0       6   -       2       0       1       3
Reverse Repo Rate (%)
 
 
Mid-Quarter Monetary Policy Review
 
Monday | June 17, 2013
 
www.angelcommodities.com
 
    P   a   g   e
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-10,000-5,00005,00010,00015,00020,00025,00030,00035,00040,000495051525354555657
Net Investments vs. Rupee Movement (Monthly Avg)
Net Investments (Rs. Cr)Rupee -Monthly Average
Challenge for the Indian economy
 –
Sustain capital inflows and increase investments
Since the onset of the global financial crisis, world markets have placed great emphasis on the monetarypolicy developments in the major economies. From the Asian market context, India is one of the majoreconomies and the monetary policy decisions by the Reserve Bank of India (RBI) would most likelyimpact investment decisions globally.By keeping interest rates steady, the role of the central bank becomes even more challenging given thecurrent weak domestic economic scenario. The weakness in the Rupee has already raised a host of economic problems - from raising the import bill, as major commodities are imported to making the CADrise, which has touched elevated levels.Also, with the US economy on a growth trajectory, there are large expectations that investment flowsinto India could be affected. Although at a slow pace, the US is witnessing a rise in economic activity asopposed to previous years and that its job market is also reviving.With improving US economic data and expectations of the monetary stimulus pullback, the Indianeconomy will have to gear up in order to
sustain capital inflows
and
increase the concentration of investments in India
in order to mitigate the impact of a bounce back in the US. This is because, bettereconomic prospects and treasury yields in the US will reduce investor concentration and participation inthe Indian markets. Asia, in any case is seeing a marked slowdown, with China being at the forefront.March
13 has witnessed a slowdown incapital inflows, which is now a major concernto the Indian economy at large. Sharpappreciation in the Rupee was seen duringJan
12 and Feb
12, however only for a shortperiod as a decline in investment flows led todepreciation in the currency. We couldexpect a repeat of a similar pattern if measures are not taken ahead of time. But apositive factor in this context is that theFederal Reserve
s withdrawal of stimulusmeasures is not expected to happenimmediately, thereby buying time for theIndian economy to boost growth byimplementation of aggressive measures.
Source: RBI, Reuters, Angel Research

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