That RBI would raise interest rates was almost certain, but by how much was a matter of conjecture for the market participants. A 25-bps increase in repo, reverse repo and CRR clearly did not shock market participants. I do not expect interest rates to be impacted much by RBI action in the near term. By the second half of the fiscal, however, yields on the 10-year govt paper should firm up to 8.3-8.5 per cent as demand for private credit picks up and pressure from government borrowings continues. Over the last few months, inflation has not only risen, but has also got broad-based.

Taken the middle path

Business Standard

After a 25-bps rate hike by the Reserve Bank of India (RBI), equity and bond markets heaved a sigh of relief, as their fears of an aggressive tightening did not materialise. But, this relief rally may be short-lived. By not acting aggressively now, RBI has only raised the likelihood of an inter-meeting rate hike, and that of being forced to tighten too much, if inflation breaches its tolerance level.

An uncharacteristic move

The decision of the Reserve Bank of India (RBI) to ease lending norms for the infrastructure sector is expected to help companies avail better and cheaper credit flow, besides getting access to new sources of funds.

Infra companies to gain from easing of lending norms

The Reserve Bank of India (RBI) today set in motion the process of allotting bank licences to private sector players and non-banking finance companies (NBFCs).

RBI sets the ball rolling on new branch licences

The proposal by banks to float holding companies has been revived after nearly three years. The Reserve Bank of India (RBI) today announced the formation of a working group to draw a roadmap for introducing a holding company structure for Indian banks.

Banks' proposal to float holding firms revived

There was a clear consensus the Reserve Bank of India (RBI) would opt for policy tightening measures with headline inflation touching 9.9 per cent in March 2010. While RBI has increased repo, reverse repo and cash reserve ratio (CRR) by 25 basis points each, the market&rsquo;s reaction appears to be that these measures are perhaps mild. This is reflected in the immediate dip in the yield of the 10-year government bonds.

A cautious approach

The Reserve Bank of India (RBI) today said the cash reserve ratio (CRR) as a policy tool was more effective for transmission of monetary policy than policy rates, and it would continue to use the former as a tool, in small steps and in a non-disruptive manner.

CRR more effective policy tool: Gokarn

The annual monetary policy statement of Reserve Bank of India (2010-11) is a continuation of its policy of calibrated exit from expansionary monetary policies against the backdrop of built-up inflationary pressures and the revival in the domestic economy. The monetary policy revolves around RBI's stated objective of anchoring inflation to a more manageable level without hampering economic growth that is underway.

Calibrated exit continues

I actually like the policy, since it shows RBI has not been taken in by the scaremongers when it comes to inflation. Inflation is likely to be trending down and, so, RBI has kept this in mind while coming out with its policy. The important thing to look at is not the wholesale price index, which is a very bad indicator, but to look at the GDP deflator, since that is actually a much better indicator of what&rsquo;s happening on prices. That shows, for instance, inflation levels for 2009-10 are likely to be in the region of 3-4 per cent. The good thing is RBI appears to be looking at the broader indicators of inflation. At the same time, it has given itself enough room to take action if it turns out that inflation is not getting under control, maybe in another six months or so.

A fine balancing act

The rupee ended down 0.45 per cent against the dollar because banks bought the dollar noting its appreciation against global currencies following Greece's debt rating downgrade, dealers said.

Rupee takes a hit too

The government bond with balance maturity of seven years was the key traded paper today as dealers began to discard the 10-year bond, which is set to lose its benchmark status by the end of March.

7-year paper becomes most traded security

The yield on the benchmark 10-year government paper remained below 8 per cent today, though it came off lows as traders booked profits, positioning for the upcoming industrial and inflation data.

Benchmark yield stays below 8%, off days' low

With guidelines in favour of the issuer, consumers need to be more vigilant.

No cure for credit card blues

The yield on the 10-year benchmark government paper fell to an intra-day low of 7.81 per cent, the lowest in three weeks, as contradictory statements from the government and the central bank kept traders guessing.

Bond yield slips on borrowing confusion

India&rsquo;s monetary policy should focus on increasing investments in productive sectors rather than inflation-targeting, according to Supachai Panitchpakdi, Director-General of the United Nations Conference on Trade and Development (UNCTAD).

'Monetary policy should target investment'

Every year, in the last quarter of the financial year, a series of fixed maturity plans (FMP) are launched by asset management companies. These are essentially close-ended income schemes, with a fixed maturity date, that is , they run for a fixed period. This period could range from 15 days to two years or more.

FMPs have more to offer

Currency futures require little margin money, but it is not meant for retail investors.

Not everybody's cup of tea

Seven leading bankers discuss the road ahead for the financial sector and the challenges of managing the economic recovery.

'Consumption, investment will drive growth'

The absence of treasury gains has taken a toll on the bottom lines of Indian banks. The 43 listed banks together reported a 3 per cent decline in net profit during the December quarter, which was the first quarterly decline in four quarters.

Treasury hit takes a toll on bank profits

India&rsquo;s foreign exchange reserves fell $1.98 billion to $280.95 billion during the week ended January 29, mainly due to revaluation of currencies.

Forex reserves fall $1.98 billion

Want fixed deposits of three years to be brought under Section 80C.

Banks seek parity with MFs

Financial Analysis: Find the Latest Financial News Analysis & Research Updates from all top sources for the Indian Finance industry on Business Standard.

Finance News Analysis, Financial Analysis and Research | Business Standard

Find the Latest Financial News Analysis & Research Updates from all top sources for the Indian Finance industry on Business Standard.

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