The policy was largely in line with market expectations. As a result of a 25 bps reduction in the CRR, around Rs.180 billion of primary liquidity will be injected into the banking system. Going forward, the RBI has indicated that there is an increasing likelihood of inflation remaining range bound around the current levels going into 2013-14, which provides space, albeit limited, for monetary policy to give greater emphasis to growth risks. On the liquidity front, the RBI commented that, it would continue to manage liquidity to ensure adequate flow of credit to the productive sectors of the economy.
Commenting on guidance, the RBI said that, initially there was a pause in the policy rate reduction stance as there were no corresponding fiscal measures/ adjustments to improve the investment climate and non-food inflation risk also persisted. Now that some of this is getting addressed, the stance is being reviewed. This perhaps gives us an indication that the RBI would further act if the current fiscal consolidation stance of the government is reflected in its Union Budget.
Overall we believe, the credit policy is positive for the markets. The cut in CRR further reduces the cost for banks. Our markets continue to look good and we remain positive going into the budget. We advise buying quality stocks with every fall in the markets.
