RBI Mid Quarter Monetary Policy Review th 18 June 2012 RBI announced a Status-quo Mid- Quarter Monetary policy review today.RBI made no changes to policy rates in the review. They continue to be as follows: Repo rate continues to be at 8.0 per cent. Consequently, the reverse repo rate under the LAF will remain unchanged at 7.0 per cent, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0 per cent. The cash reserve ratio (CRR) of scheduled banks unchanged at 4.75 per cent of their net demand and time liabilities.Liquidity Management remains a priority for RBI. Reserve Bank will continue to use OMOs as andwhen warranted to contain liquidity pressures. To further augment liquidity and encourage banks toincrease credit flow to the export sector, the Reserve Bank has increased the limit of export creditrefinance from 15 per cent of outstanding export credit of banks to 50 per cent, which willpotentially release additional liquidity of over Rs. 30,000 crores. RBI has stated that this is equivalentto about 50 basis points reduction in the CRR. Further, an implication of the rupee depreciation overthe past several months is that domestic producers have gained in competitiveness over foreignproducers. Over time, this should result in expanding acting as a demand stimulus.The evolving growth-inflation dynamic will continue to influence the Reserve Banks stance oninterest rates. RBI has guided that future actions will depend on a continuing assessment of externaland domestic developments that contribute to lowering inflation risks.The statement and the inaction has definitely disappointed the market. We now expect RBI to cutrepo rates in the quarterly review in July.Our Equity View: Considering the significant slowdown in the economy, interest rate cuts areinevitable. Although markets would be disappointed in the short term, we expect rate sensitive’s tocontinue to do well. Financials and auto space will do well as market will start expecting rate cuts inthe July policy.
Swapnil Pawar Varun Goel Neha Arora DisclaimerThe information and views presented here are prepared by Karvy Private Wealth or other Karvy Groupcompanies. The information contained herein is based on our analysis and upon sources that we considerreliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personalinformation and we are not responsible for any loss incurred based upon it.The investments discussed or recommended here may not be suitable for all investors. Investors must maketheir own investment decisions based on their specific investment objectives and financial position and usingsuch independent advice, as they believe necessary. While acting upon any information or analysis mentionedhere, investors may please note that neither Karvy nor any person connected with any associated companies ofKarvy accepts any liability arising from the use of this information and views mentioned here.The author, directors and other employees of Karvy and its affiliates may hold long or short positions in theabove-mentioned companies from time to time. Every employee of Karvy and its associated companies arerequired to disclose their individual stock holdings and details of trades, if any, that they undertake. The teamrendering corporate analysis and investment recommendations are restricted in purchasing/selling of shares orother securities till such a time this recommendation has either been displayed or has been forwarded to clientsof Karvy. All employees are further restricted to place orders only through Karvy Stock Broking Ltd.The information given in this document on tax are for guidance only, and should not be construed as tax advice.Investors are advised to consult their respective tax advisers to understand the specific tax incidence applicableto them. We also expect significant changes in the tax laws once the new Direct Tax Code is in force – this couldchange the applicability and incidence of tax on investmentsKarvy Private Wealth (A division of Karvy Stock Broking Limited): Operates from within India and is subject toIndian regulations. Mumbai office Address: 702, Hallmark Business plaza, Sant Dnyaneshwar Marg, Bandra(East), off Bandra Kurla Complex, Mumbai 400 051 (Registered office Address: Karvy Stock Broking Limited,“KARVY HOUSE”, 46, Avenue 4, Street No.1, Banjara Hills, Hyderabad 500 034) SEBI registrationNo’s:”NSE(CM):INB230770138, NSE(F&O): INF230770138, BSE: INB010770130, BSE(F&O):INF010770131,NCDEX(00236, NSE(CDS):INE230770138, NSDL – SEBI Registration No: IN-DP-NSDL-247-2005,CSDL-SEBI Registration No:IN-DP-CSDL-305-2005, PMS Registration No.: INP000001512”