Wednesday, November 3, 2010

RBI raises key rates; FM says may impact short-term growth

Hardening its stance on inflation, RBI on Tuesday raised some key policy rates prompting Finance Minister Pranab Mukherjee to caution that it could have some short-term negative impact on growth.

The apex bank increased its short-term lending (repo) and borrowing (reverse repo) rates by 25 basis points to 6.25% and 5.25% respectively, but the commercial banks said they would not increase their lending rates immediately.

``This tightening may have some negative impact on the growth rate, but I expect such an effect to be only a short one. In the medium to long term, the changes announced by the RBI today should actually help the Indian economy do better in terms of growth,`` Mukherjee said.

This was the sixth time this year that the Reserve Bank of India (RBI) has raised repo and reverse repo rates.

The apex bank, however, hoped that going forward it may not have to up the rates further.

India Inc expressed apprehensions that the RBI decision would make loans expensive and may dampen industrial growth.

``This (RBI move) in turn would adversely impact the interest sensitive sectors like consumer durables and auto, which have led the growth hitherto as also on the housing demand,`` Ficci Secretary General Amit Mitra, said.

RBI has pegged the growth rate for the current fiscal at 8.5%, up from 7.4% in the previous fiscal.

The mid-year policy initiatives, according to Planning Commission Deputy Chairman Montek Singh Ahluwalia, was in sync with the actions of other central banks.

Although banks said they would refrain from immediately hiking rates, they may not be able to hold on to the existing rate-level for long as demand for credit increases and depositors put pressure on them to raise interest rates.

``So, whether it (hike by RBI) will raise pressure on the system Eventually, it will. Whether there would be immediate reaction Not likely,`` said, SBI Chairman O P Bhatt.

The hike in the key interest rates according to RBI are aimed at containing inflation, which is above the `comfort level.`

Inflation was 8.62% in September and food inflation was 13.75% in mid-October. RBI has pegged inflation at 5.5% by the fiscal- end.

``Today is not such an easy time. The signals from the economy have been mixed. Industrial growth showed a slight slowing down in August. Inflation, while less than what it was some months ago, is still not in a zone where we can sit back,`` Mukherjee added.

RBI, however, refrained from raising the cash reserve ratio (CRR), which is the proportion of deposits that the banks keep with the central bank, in view of tight liquidity situation.

``I am glad that RBI has risen to the challenge and used a very careful combination of policies to complement what the government is doing to steer our economy to grow better and harness inflation,`` Mukherjee said.

Stock markets reacted mildly to the hike in policy rates by RBI with the benchmark Sensex ending the day flat.

``RBI`s move to hike the key policy rates are in line with the Street`s expectations and equity markets have not reacted much to the announcement since it has already be factored in,`` Axis Mutual Fund CEO and MD Rajiv Anand, said.

Expressing concern at excessive borrowing for homes, the Reserve Bank also tightened norms for housing loans as well as controversial teaser loans.

The Reserve Bank also cautioned against rising stock and gold prices.

It said huge capital inflows in emerging economies are resulting in appreciation of local currencies and asset prices.

The central bank said it may intervene if Forex flows are lumpy and volatile.

Source: http://www.myiris.com/newsCentre/storyShow.php?fileR=20101102213728200&dir=2010/11/02&secID=livenews

No comments:

Just click away from joining most active Mutual Fund India google group

Google Groups
Subscribe to Mutual Fund india
Email:
Visit this group

Aggrasive Portfolio

  • Principal Emerging Bluechip fund (Stock picker Fund) 11%
  • Reliance Growth Fund (Stock Picker Fund) 11%
  • IDFC Premier Equity Fund (Stock picker Fund) (STP) 11%
  • HDFC Equity Fund (Mid cap Fund) 11%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 10%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund) 8%
  • Fidelity Special Situation Fund (Stock picker Fund) 8%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Moderate Portfolio

  • HDFC TOP 200 Fund (Large Cap Fund) 11%
  • Principal Large Cap Fund (Largecap Equity Fund) 10%
  • Reliance Vision Fund (Large Cap Fund) 10%
  • IDFC Imperial Equity Fund (Large Cap Fund) 10%
  • Reliance Regular Saving Fund (Stock Picker Fund) 10%
  • Birla Sun Life Front Line Equity Fund (Large Cap Fund) 9%
  • HDFC Prudence Fund (Balance Fund) 9%
  • ICICI Prudential Dynamic Plan (Dynamic Fund) 9%
  • Principal MIP Fund (15% Equity oriented) 10%
  • IDFC Savings Advantage Fund (Liquid Fund) 6%
  • Kotak Flexi Fund (Liquid Fund) 6%

Conservative Portfolio

  • ICICI Prudential Index Fund (Index Fund) 16%
  • HDFC Prudence Fund (Balance Fund) 16%
  • Reliance Regular Savings Fund - Balanced Option (Balance Fund) 16%
  • Principal Monthly Income Plan (MIP Fund) 16%
  • HDFC TOP 200 Fund (Large Cap Fund) 8%
  • Principal Large Cap Fund (Largecap Equity Fund) 8%
  • JM Arbitrage Advantage Fund (Arbitrage Fund) 16%
  • IDFC Savings Advantage Fund (Liquid Fund) 14%

Best SIP Fund For 10 Years

  • IDFC Premier Equity Fund (Stock Picker Fund)
  • Principal Emerging Bluechip Fund (Stock Picker Fund)
  • Sundram BNP Paribas Select Midcap Fund (Midcap Fund)
  • JM Emerging Leader Fund (Multicap Fund)
  • Reliance Regular Saving Scheme (Equity Stock Picker)
  • Biral Mid cap Fund (Mid cap Fund)
  • Fidility Special Situation Fund (Stock Picker)
  • DSP Gold Fund (Equity oriented Gold Sector Fund)