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Jun 03, 2014

Lalitabh Shrivastawa (Analyst)


(022) 22822992 Ext. 150
lalitabh.s@dalal-broacha.com
Milind Karmarkar (Head Research)
(022) 6630 8667
Nilay Dalal / Sandeep Shah (Equity Sales)
(022) 3290 3017
RBI Policy Update @ Dalal & Broacha
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Dalal & Broacha
Stock Broking Pvt. Ltd.
Update on RBI's Second Bi-monthly Monetary Policy Statement, 2014-15
Key Policy points
The RBI move to cut SLR rate (by 50 bps) to 22.5%was a surprise. However, keeping the Repo &
MSF rates unchanged was in line with market expectations.
Also, the liquidity provided under the export credit refinance (ECR) facility was reduced from
50%to 32%of eligible export credit outstanding with immediate effect; but a special term
repo facility of 0.25%of NDTL was introduced to compensate fully for the reduction.
CPI Inflation moderating: In March and April, CPI inflation has risen on the back of a sharp
increase in food prices. While some of the rise is expected to continue into May, but it is
largely seasonal. and notably, the CPI (excl. food and fuel) has been edging down.
Balanced risks to the prediction of 8%CPI by January 2015: Upside risks to inflation include 1) a
sub-normal/ delayed monsoon due to El Nino, 2) Geo-political tensions and their impact on
fuel prices, and 3) uncertainties regarding the setting of administered prices, appear at well
balanced by the possibility of 1) stronger Government action on food supply and 2) better
fiscal consolidation and pass through of recent exchange rate appreciation.
If CPIinflation trajectory stays on course (8% by Jan-15 & 6% by Jan-16) then the RBI indicates
that further policy tightening will not be warranted. However, if disinflation, adjusting for
base effects, is faster than currently anticipated, it will provide headroom for an easing of
the policy stance.
Outlook: We believe that the policy indicates a possible softening of the RBI stance. The move
to cut SLR makes more funds available to corporate sector.
Provided there isn't a spike in CPI rates, Rates should moderate going forward. The projection
of Real GDP growth in FY15 in a range of 5-6%with the central estimate of 5.5%is maintained.
We expect RBI to cut policy rates by 25bps in the next policy meeting if the inflation moderates
in line with the assigned trend.
The third bi-monthly monetary policy statement is scheduled on Tuesday, August 5, 2014.
Policy Tools Post policy Pre policy Status
Repo 8.00% 8.00% Unchanged
Reverse Repo 7.00% 7.00% Unchanged
- bps above Repo -100 -100
Marginal Standing Facility (MSF) 9.00% 9.00% Unchanged
- bps above Repo 100 100
Bank Rate 9.00% 9.00% Unchanged
- bps above Repo 100 100
CRR 4.00% 4.00% Unchanged
SLR 22.50% 23.00% reduced by 50bps
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Dalal & Broacha
Stock Broking Pvt. Ltd.
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RBI Policy Update @ Dalal & Broacha
Disclaimer
This document has been prepared and compiled from reliable sources. While utmost care has been taken to ensure that the
facts stated are accurate and opinions given are fair and reasonable, neither the Company nor any of its Directors, Officers or
Employees shall in any way be responsible for the contents. The Company, its Directors, Officers or Employees may have a
position or may otherwise be interested in the investment referred in this document. This is not an offer or solicitation to buy,
sell or dispose off any securities mentioned in this document.
For Further details
Contact Email ID Contact No. Sector
Mr. Milind Karmarkar milind.karmarkar@dalal-broacha.com 022 67141445 Head Research
Ms. Hiral Sanghvi hiral.sanghvi@dalal-broacha.com 022 67141444 Retail, Cement
Mr. Kunal Bhatia kunal.bhatia@dalal-broacha.com 022 67141442 Auto, Auto Ancillary, FMCG
Mr. Lalitabh Shrivastawa lalitabh.s@dalal-broacha.com 022 67141450 Financials & Capital goods
Mr. Ankit Panchmatia ankit.panchmatia@dalal-broacha.com 022 67141444 IT
Ms. Purvi Shah purvi.shah@dalal-broacha.com 022 67141446 Pharma
Mr. Ankeet Pandya ankeet.pandya@dalal-broacha.com 022 67141443 Agrochemicals, Fertilizers,
Address :- 508, Maker Chambers V, 221 Nariman Point, Mumbai 400 021 Tel: 91-22- 2282 2992, 2287 6173, (D) 6630 8667 Fax: 91-
22-2287 0092
E-mail: research@dalalbroachaindia.com, equity.research@dalal-broacha.com