6 April 2015

RBI Rate cut policy ; Bank Nifty Volatile On 7 April 2015

After two wasted rate cuts, should the RBI go for yet another? 
Rajan has already surprised the market twice with out of turn rate cuts on January 14 and March 4. In the intervening schedule policy on February 3 he refused a cut on the grounds that the rate cut had happened just 20 days before on January 14. Consequently this time don't expect a rate cut. After all Governor Rajan gave one just a month ago on March 4. The markets have bounced back from the bottoms and the rate cuts have not percolated down to the economy. Reductions in key interest rate by the RBI have not helped stimulate investment in the manufacturing sector, a poll ahead of the Reserve Bank's policy review on Tuesday. RBI has lowered interest rates by a total of 0.50 per cent since January, but banks are yet to pass on the benefits to borrowers. "Interest rates or cost of finance continues to be sticky. Interest rates paid by the manufacturers range from 9.5 per cent to 14.75 per cent with average interest rate at 12.2 per cent. Banks will wait till RBI's next monetary policy review on April 7 before deciding on interest rates. It is the last weekend before the credit policy. Traditionally this is the most important policy – considering this is the first in the new financial year. The markets and the economy will not only watch for the rate action but also for RBI's assessment of the New Year, its growth and inflation forecasts. So all eyes would be on the RBI and the likely steps it may take to further boost the liquidity, However in case there is no action tomorrow, the markets can sell off a bit more. This being the first policy of the year, the market is also watching for RBI’s growth forecasts. This is a tricky issue for RBI after the CSO while revising the base year from 2004 to 2011 revised the FY16 growth forecasts to 7.5 percent from much lower levels earlier. We Expect RBI to forecast a 7.6-8 percent gross domestic product (GDP) forecast this year i.e. FY16. Most of us are expecting a gradual growth recovery, so given that output gap is going to gradually start to close in the next two years what is the base line assessment on inflation. Second, in a sense the March cut sort of already implies this, but some more clarity on what the RBI really thinks about the new gross domestic product (GDP) numbers, Perhaps potential growth is a bit higher because we have seen lower inflation despite supposed upward revisions in growth numbers, so their assessment on where we are on growth and more also on potential growth on the economy.
There’s huge impact of the policies of RBI on the market .Generally, the governor of RBI announces the policies sharp at 11 AM, in the NSE on a working day. Any changes in the policies have a huge impact on the Banking stocks which makes the Index of Bank Nifty quite volatile. Within two to three minutes five hundred points go either up or down. When the Governor of RBI announces the policies of RBI many a time the trend of the market changes. Also, the market moves higher or lower on the basis of the expectations from the changes which might come after the announcement of the policies. The changes which come after the announcement of policies on Banking stocks, auto stocks. analysis of credit policy impact on stock market. In this study analysis has emphasized of the period of 10years i.e. 2004 to 2014 RBI credit policy emphasized on the liquidity management to maintain the economic growth activity. The selected credit rates were have a relationship with nifty liquidity in the country is largely influenced by the SLR & Repo rate but CRR & reverse repo rate were not causing the liquidity movements. The bank nifty which represents listed banks stocks performance is caused by all the credit rates. Various economic factors were affecting the equity indicator nifty in the rest part.

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