Posts Tagged ‘RBI’

Weekly Update 1-5th November 2010

Global markets saw profit booking ahead of the Federal Reserve’s decision on monetary easing at its meeting on 2-3 November 2010 in order to spur growth and to reduce the unemployment rate. Economists expect the Fed to buy between $80 billion and $100 billion worth of assets each month in a new program to stimulate the economy. IMF pointed out that global liquidity, by whichthey meant money supply growth in the G-4 economies of Japan, the US, the euro zone and the UK, has an impact five times as large as domestic liquidity on what it called the liquidity receiving economies, or the emerging markets.

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The U.S. gross domestic product rose at a 2 percent annual rate in the third quarter after a 1.7 percent increase in the previous three months. Japanese factory production fell 1.9 percent in September from August and core consumer prices saw a decline of 1.1 percent from a year earlier added to worries that stronger yen is affecting economy expansion. G-20 finance ministers and central bankers said they will refrain from “competitive devaluation” and let markets have a bigger role in setting foreign-exchange values.

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Citing Inflation a major concern, RBI has last hiked the policy rates by 25 bps in September for the fifth time. Headline inflation has come off to single digit and is likely to come down further going ahead as harvest season produce is expected to come in the market. The government recently allowed duty-free import of rice and wheat and has released grains from its stocks to rein in food price rise. On the manufacturing side, Industrial production growth dropped to 5.6 percent in August from 15.2 percent in July. The growth of six infrastructure industries has further slowed to 2.5% in September, pulled down by contraction in output of coaland petroleum refinery.Though possibility of hike of another 25 bps by RBI in its meeting on 2nd November cannot be ruled out but a large section of the market believes that this timearound RBI may not touch upon the policy rates citing inflation coming down going forward and moderation in manufacturing activity.

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Further the actions taken so far by RBI has yet to give any material affect in the economy as even after the hikes in policy, the banks have yet to make adjustments in interest rates. Nifty has support between 5930-5840 and Sensex between 19640-19200.Sea saw movements in commodities is showing the nervousness among the investors ahead of Fed meeting which is scheduled in this week. If Fed goes for second round of quantitative then it can give confidence to economy and spill over can be seen in commodity as well. On the other side, if Fed goes for less than expected money injection in economy then we can see some downside in base metals and energy.

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Dollar index slid about 6 percent since early September on the talk of same “QE2” in US. Bullions were the major beneficiary of this fall in dollar index. October was a volatile month for commodities in which commodities reacted on every speculation over quantitative easing and agricultural markets going their own way as crops forecasts were cut. Commodities end month with modest gain. Investors should adopt cautious approach ahead of meeting.

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Indian Banking System Witnesses Slowdown in Deposit Growth

Despite deposit rates being revised by various commercial banks, the Indian banking system is witnessing a lull in deposit growth, according to data released by the Reserve Bank of India (RBI). On a year-on-year (YOY) basis, the deposit growth in the banking system rose 14.79% (34 bps higher over the previous fortnight) to Rs 46,90,703.28 crore during the fortnight ended September 10. Further, during the previous fortnight ended August 27, 2010; the deposits mobilized by banks grew by 14.45% to Rs 46,70,237 crore. Hence, the deposits collected by banks went up by Rs 20,465 crore, against an increase of around Rs 38,658 crore in the previous fortnight.

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People from the top management of various banks are citing their reasons for this lull. B A Prabhakar, ED, Bank of India (BoI) said, “Like credit growth, deposit growth is looking sticky. It is because people may be holding a lot of cash in hand.” Further, HSU Kamath, ED, Canara Bank, said, “People are putting their money in other schemes like post office savings schemes, mutual funds and stock market investment. With the sensex touching 20,000 mark, equity market investments look attractive to the people. It should be one of the causes of slower deposit growth. Now rate of deposits have gone up by 100-200 basis points across the banking industry, that situation will be corrected soon and deposit growth is expected to pick up by the end of September,” he added.

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Industry experts also believe the current rally in equity markets to be the major reason for this slowdown and argue that this jump has lured people’s attention to equity market instruments from the traditional banks’ term deposits. In this backdrop, Reserve Bank of India (RBI) raised repo and reverse repo rates by 25 and 50 basis points (bps), respectively, on September 16, though most banks are yet to follow suit. Worried over this development, RBI is prodding banks to increase their deposit rates.

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Going further, though the central bank had projected 18% growth in deposits for 2010-11, it has not exceeded 15% in this financial year so far.

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Weekly Update 20th – 24th September 2010

Global market rallied in the week gone by after Japan intervened in the currency market to weaken yen and Chinese and U.S. economic reports raised the confidence of global growth. Stocks rallied in Japan after it intervened in the currency market to stem the Yen appreciation. The yenweakened to 85.85 per dollar after climbing as high as 82.88 per dollar earlier inthe week, the strongest level since May 1995.

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Continuous reversal in Yen may leadto more investment in exporter companies in the region. The concerns overmoderate expansion in China got erased as the data showed that Industrial Production expanded 13.9 percent in August. The data gave optimism on global growth and led to rally in metals.

Consumer sentiment in U.S. fell to one year lowof 66.6 from 68.9 in August increasing the risk that consumer will cut back on theirpurchases.In India, RBI, in order to anchor inflationary expectations and as a step tocontinue the process of normalisation of the monetary policy instruments raisedborrowing costs for the fifth time this year.

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It raised Repurchase (repo) Rate to 6percent from 5.75 percent, and the reverse-repurchase rate to 5 percent from4.5 percent. It seems that for now, RBI has done enough to contain inflationarypressures and as the repo rate is the operative policy rate therefore thetransmission from policy rates to market rates has strengthened.

Going forward,we expect that RBI would give due weigh to the macro economic situation ratherthan only inflationary pressures before doing any adjustment in monetary policyinstruments.We expect the market to remain firm as even advance tax numbers were higherthan that of last year. Next week U.S. Federal Reserve is expected to give stimuluspackage in its meeting scheduled on 31st September seeing the worrisomesituation of high unemployment and weakness in construction activity asindicated by the latest Fed Beige book finding.

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With the positivity from the global front, we are steadily approaching near the alltime high zone and likely to extend the up move in the coming weeks withrequired consolidation for the sustainable move. Nifty has support between 5700-5550 and sensex between 19200-18800.Another round of quantitative easing by the fed amid falling dollar proved supportive to the bullions and once again lovable gold made life time high acrossthe bourses. Though it made life time high on MCX as well but upside was limiteddue to appreciation in local currency. Silver is also rocking on heavy investmentdemand. Even base metals recovered as many central banks maintained low borrowing cost but slow recovery is capping the upside of industrial metals. Evenfalling crude oil is indicating ambiguous trend. This week, bullions may see aconfident move further on fundamental and technical support.

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Nevertheless,appreciation in currency may lock the price movements to some extent on domestic bourses. FOMC meet regarding interest rate will provide further direction to commodities. Expect a volatile week for agro commodities as expiryof September contract is scheduled on Monday.

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Weekly Update 13th – 17th September 2010

The Indian markets saw good gains in the week gone by, as foreign investors continued to put money in search of growth which is lukewarm in major part of the world. According to the latest FED beige book finding, the U.S. economy has shown “widespread signs of a deceleration” in mid-July through the end of August. The Beige Book showed that within manufacturing, weakness was largely related to construction while strength was in auto-related production, including production of steel indicating that the FOMC may consider stimulus package in the September meeting.

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Deficit concerns pertaining to European countries also waned when Portugal managed to clock bids for 2.6 times the amount offered for sale of bonds due in 2021 compared to 1.6 times in the March sale. The better response to the bond sale gave relief to the investors over the health of European nations. Chinese government would continue to take measures in order to curb down speculation in property market and U.S. may call for protection against China imports are some of the concerns that are playing out in the market. Agovernment report showed that the manufacturers in Japan were optimistic for the fifth consecutive quarter. Japanese government is expected to revise up its estimate for the second quarter economic expansion as the companied have cut spending at the slowest pace since 2007.

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Going ahead, market will keep an eye on the RBI move in its monetary review due next week. There is a chance that RBI may leave policy rate unchanged for a while or tinker with Repurchase (Repo) rate by hiking it by 25 basis points. The expectations of good growth especially in the industrials have been built as the companies are now more confident about their expansion plans. The expected uplift in the manufacturing in the third quarter is likely to provide the gains in materials like cement and steel companies in terms of better realization of the products.

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Despite mixed cues from the global indices, Indian markets traded with the positive bias throughout the week. It almost tested the upper trend of the weekly channel so one should be careful for the week ahead and wait for the sustainability above that zone for confirmation of breakout before initiating fresh investment. Nifty has support between 5540-5475 and Sensex between 18300- 18000 levels.

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It was a truncated week for Indian market. Upside in bullions dazzled the eye of investors. Gold is trading near the mark of all time high as investors increased their long position in gold futures on safe haven buying. Mighty commodity crude, lost its shine on end of driving season in US amid comfortable stocks. Increasing short position in gasoline is adding further pressure on prices. Crude may trade in a range of $71-$76 dollar per barrel. Investors should keep a tight vigil on the data of US Michigan Confidence, advance retail sales etc, which is likely to provide further direction in commodities. As regards agro commodities it should be a good week for oil seeds and edible oil complex where investors may see some lower level buying. However, ample of stocks may cap the upside.

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Jet Airways Touches 52 Week High

Jet Airways is currently trading at Rs 810.00, up by 30.60 points or 3.93% from its previous closing of Rs 779.40 on the BSE.
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The scrip opened at Rs 778.00 and has touched a fresh 52 week high of Rs 831.30 and low of Rs 765.00 respectively. So far 1214825 shares were traded on the counter.

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The BSE group ‘A’ stock of face value Rs 10 has touched a 52 week high of Rs. 831.30 on 20-Aug-2010 and a 52 week low of Rs 221.80 on 08-Sep-2009.

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Last one week high and low of the scrip stood at Rs 831.30 and Rs 659.80 respectively. The current market cap of the company is Rs 7077.23 crore.

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The promoters holding in the company stood at 80.00% while Institutions and Non-Institutions held 15.60% and 4.40% respectively.

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Jet Airways, India’s premier international airline, has sought Reserve Bank of India’s (RBI) nod to raise foreign currency loans worth Rs 3,450 crore for the purpose of repayment of higher-cost domestic debt.

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The country’s largest private-sector carrier is planning to discharge the loans taken from local banks through the amount raised, though under current regulations, foreign currency loans, also known as external commercial borrowings (ECBs), cannot be used to refinance domestic loans. In this backdrop, recently, only those telecom firms which had bid for 3G licences have been allowed repayment of rupee loans with the ECB proceeds.

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Further, the company wants RBI’s support to ensure uninterrupted services and continued employment to over 13,000 employees..

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Weekly Update 2nd – 6th August 2010

Asian markets saw buying as more than half of the companies that announced results in the MSCI Asia Pacific Index have exceeded the analyst’s estimates, boosting confidence about the strength of the recovery. U.S. economy expanded at a 2.4 percent annual pace in the second quarter less than forecast, indicating that the world largest economy will see a moderate recovery.

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The jobless recovery is curbing household purchases as consumer spending that accounts for about 70 percent of the economy rose 1.6 percent in last quarter, compared with a 1.9 percent rate in the previous three months. U.S. financial system recovery is fragile and as per IMF stress tests banks may need as much as $76 billion in capital. In India, as per expectations RBI hiked the policy rates and indicated that monetary steps will continue in order to moderate inflationary pressures.

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RBI chief said that despite of the monetary measures, monsoon rains would play a critical role in moderating food prices. Now RBI will release eight monetary policy statements in a year that will cut short the time of monetary policy adjustments. The central Bank also revised its estimates for inflation and economic growth to 6 percent and 8.5 percent from earlier estimates of 5 percent and 8 percent respectively.

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The annual monsoon rains bounced back from a 17-percent deficit in the previous week to 38 percent above normal in the week to 28 July 2010.Heavy, well distributed showers in the past week helped total rainfall rise to normal during July have raised the farm sector prospects thereby indicating a pickup in rural demand.

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Till now the results announced so far have shown a mixed picture with some disappointment coming from the large caps.The combined net profit of a total of 1,085 companies declined 12.6 percent to `47280 crore on 23.1 percent increase in sales to 609368 crore in Q1 June 2010 over Q1 June 2009. Going next week some of the top companies like SBI, Bharti Airtel, Tata Motors, Tata steel, etc will announce their quarterly numbers and would help in setting the undertone of the market.

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Indian Stock Markets are holding on to the gains though the momentum for rise is lacking. But the world stock markets are slowly inching up with base metals commodities also showing strength. The rise in Rupee and the midcap stocks rally in the week gone by gives a hope of further rally. It seems the market would take a clearer direction in the coming week. Nifty has support between 5315-5250 levels and Sensex between 17700-17500 levels.

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It is quite visible that good corporate earnings have propped up the sentiments of financial market and commodity is not an exception. Hence we have seen that capital inflow switched to riskier asset from safe asset like gold and dollar index.

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Base metals are the major beneficiary and they are trading at multi months high whereas crude is reacting on stocks pile up in US and ignoring other positive cues. If positive outcome of economic indicators and earnings continue to come in near future then all base metals will trade in a range with upside bias and vice a versa.

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Even in crude oil some lower level buying may occur this week. Expect further fall in gold and if it breaches the mark of 17500 then we may see some spurt in physical buying. In agro commodities, spices may trade in a range on mix fundamentals.

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Weekly Update 26th – 30th July 2010

The markets witnessed good buying in the week gone by as the corporates from U.S. to Europe showed good performance raising the confidence in the strength of the global economic growth. Continuous buying by the foreign institutions and the strength in the developed markets helped stocks to scale 29 months high. U.S. Fed chief Ben S. Bernanke said that central bank would take additional action if the world’s largest economy does not continue to improve.

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European Banks Stress test result showed that from a sample of 91 European banks, representing 65% of the European market in terms of total assets, 7 banks would see their Tier 1 capital ratios fall below 6%. The focus of the test was mainly to assess the ability of the banks to absorb possible shocks on credit and market risks, including sovereign risks over a 2 years horizon, until the end of 2011. The test revealed that the aggregate Tier 1 ratio, used as a common measure of banks’ resilience to shocks, under the adverse scenario would decrease from 10.3 percent in 2009 to 9.2 percent by the end of 2011 (compared to the regulatory minimum of 4 percent and to the threshold of 6 percent set up for this exercise). However investors are still ambiguous about the credibility of the test as it ignores the majority of banks’ holdings of sovereign debt assuming a case of no default by Greece or any other European country.

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India Inc. has so far shown good performance. The net profit of 339 companies that have declared results has grown by 25.5 percent and sales have shot up by 17.8 percent compared to corresponding quarter last year. The annual monsoon rains improved 24 percent from the deficit in the previous week, but were still 17 percent below normal in the week to 21July 2010, as per the data of the India Meteorological Department on Thursday, 22 July 2010. The seasonal monsoon rains during 1 June to 22 July 2010 were 12 percent below normal.

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The expectation of another 25bps hike in policy rates has already been built in the market. Market would take a cue from what RBI says in its monetary policy on 27th July about the health of domestic market and the steps in its act of balancing growth while anchoring inflationary expectations.

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Trend of Indian Stock Markets is up since a month and now the world markets are also participating in the rally. The rise in Base metal commodities is giving more steam to the rally as that is a reflection of increasing demand for metals in the industry. Nifty has support between 5315-5250 levels and Sensex between 17700- 17500 levels.

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Better than expected earnings amid optimistic equity market bestowed the much needed direction to the commodity market and thus it headed for biggest gain since March. In the meantime, dollar is going down and likely to trade in a negative territory as investors are moving back to the risky asset, which is appearing more promising in current context. Gold is narrating the same story and it is moving in a range with downside bias. Gold silver ratio has declined as silver outperformed gold, getting support from terrific rise in base metals prices. Energy complex has ignored the negative news and shore up on better results and strong technicals. But yes, it’s a time to book profit in spices as they are overbought now, especially pepper.

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Weekly Update 19th – 23rd July 2010

The concerns over recovery in global economy resurfaced in investors mind as China economy grew 10.3 percent in the second quarter showing moderation from 11.9 percent expansion in the first quarter. In U.S., consumer confidence dropped in July to the lowest level in the year to 66.5 from 76 in previous month and factory output too fell by 0.4 percent in June.

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The minutes released by the office of the Federal Reserve said that “The economic outlook had softened somewhat and a number of members saw the risks to the outlook as having shifted to the downside”. The statement and weak data only added to the worries and led to the decline in most of the global markets.

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India’s Industrial Production growth came surprisingly low to 11.5 percent in May from a year earlier and the April growth was revised downward to 16.5 percent from 17.6 percent. It is expected that the Industrial Production will remain close to double digits as some of the leading indicators like vehicle sales remained buoyant in June.

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Keeping a vigil on the liquidity and in order to ensure smooth credit lines for both government and corporate to sustain the growth momentum, RBI has further extended the second liquidity adjustment facility (SLAF) on a daily basis till July 30, 2010. Strong credit growth in Banking system and Industrial production together with high food inflation may influence RBI to raise policy rates by another 25 bps in its first quarter review on 27th July.

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The latest statement by the IMD that the monsoon up to 15 July has so far been 14 percent below the long period average is a cause of concern.July, especially being the most important month for sowing the Kharif crops has led to the alteration of earlier beliefs that going ahead food inflation will moderate.

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Mostly world markets are in downtrend though Indian stock market is still in uptrend. The base metal commodities are not able to rise which is showing the underlying uncertainty in the markets. One should be cautious in such markets.

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Nifty has support between 5280-5220 levels and Sensex between 17600-17400 levels.Indian markets have gone up substantially in last one and half month and dollar index has fallen sharply from higher levels but the Indian rupee has not moved much which is a sign of concern as rupee should have strengthened in such an environment.

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Lack of clarity with reference to the direction of world economy is painting a hazy picture for commodity market. Even uncertain outcome of economic releases and result of second quarter is giving little direction to the commodities. Investors are refraining to make large position in current situation. This week, we have important data form UK and Canada. Housing data can give further direction to base metals. Bullions can trade in a slim spread. Expiry of July contract in NCDEX may result in more volatility in all agro commodities. After witnessing a multi week high some spices may see a pause in rally.

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Weekly Update 5th – 9th July 2010

The global markets fell in the week gone by as the manufacturing growth exhibited weakness from China to U.S. The investor’s across the globe became nervous with the fading signs of global recovery. G20 leaders said that the limited demand in advanced economies has left the world reliant on emerging markets, led by China, to drive a recovery is “uneven and fragile.”

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China’s manufacturing growth slowed more than expected in June adding to the concerns that the fastest- growing major economy is cooling. The government’s Purchasing Managers’ Index declined to 52.1 from 53.9 in May. In the U.S., manufacturing slowed in June with the cooling demand from rest of the world.

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The Institute for Supply Management’s gauge of manufacturing fell to 56.2 from 59.7 a month earlier.

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As anticipated in our last two editions, RBI raised the policy rates i.e. Repurchase and Reverse Repurchase rate by 25 bps taking it to 5.50 percent and 4 percent respectively as a part of the calibrated exit from the expansionary monetary policy. The strong growth shown by manufacturing sector especially capital goods sector, acceleration in credit growth and the widening current account deficit helped RBI to take such a step in order to anchor inflationary expectations going forward. In order to address the liquidity situation which is currently in deficit mode under LAF operations, RBI allowed banks to borrow to 0.5 per cent of their net demand and time liabilities (NDTL) even in case of a shortfall in maintenance of statutory liquidity ratio (SLR) till July 16, 2010.

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The expectation of hike in policy rates by RBI was very much priced in and will not have any bearing effect on the stock markets. However expecting good monsoon, the market was in the belief that inflation will come down in the months to come. But the recent numbers from IMD suggests a relook as so far the monsoon was 16 percent below normal in June 2010.

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Indian stock markets were holding on when all the world stock markets are falling but one should be very cautious when world markets are falling so much as Banking and IT sector are showing some weakness. Nifty has support between 5200-5100 levels and Sensex between 17300-17000 levels.

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Gone was wholly a brutal week for commodities. After the fourth quarter of 2008, first time commodities witnessed quarterly decline. Even the topmost hot favorite of investors gold and dollar index toppled down as money manager’s shifted their attentions towards euro, which saw a decent rise last week. Poor economic data’s in a row further pave the path for selling. At present one should wait for the clear trend. Base metals and energy have already seen a steep decline, may trade in a range for the time being. Similar story is of gold and silver.

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RBI hikes policy rates by 25 bps, surprises on timing

The Reserve Bank of India (RBI) in the post market hours on Friday evening hiked its benchmark policy rates repo and reverse repo by 25 basis points (bps) in order to check the surging pace of price hike and cushion inflationary expectations which have been threatening to move out of central bank’s control.

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The hike while was well anticipated, the timing of the announcement was an absolute surprise. Analysts have been anticipating a mid-cycle hike right from the release of central bank’s annual monetary policy statement in April. However, the euro zone sovereign debt crisis and the recent liquidity crunch have been weighing on the side of keeping status quo on policy stance.

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The expectations of a mid-cycle action increased after the inflation data released in middle of May showed wholesale prices index (WPI) reaching double digit levels. The RBI however remained silent. Again when the empowered group of ministers (EGoM) hiked fuel prices on June 25, analysts expected RBI to act immediately to counter the inflationary impact of partial deregulation of auto fuels and hike cocking fuels. No action however came at that time.

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Now that the scheduled review is just around four weeks away (July 27), most economists were expecting that the RBI will wait for the policy review. However, surprising the markets in a classical way, the central bank increased the rates when no one was anticipating.

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Notwithstanding the surprise though, the policy action is a welcome move as inflationary tendencies have been increasing sharply over last few months. The central bank, according to many observers, is already behind the curve, and may have to pick up the pace of policy tightening going forward if the pace of prices hike in the non-food manufacturing space continues.

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The timing and extent of hike also suggests that the central bank will further raise policy rates in the scheduled review. In fact, by hiking by 25 bps now, the RBI has given itself more flexibility for the forthcoming review where it can now choose among a number of permutations and combinations of policy and reserve rate mix. It may choose to hike everything (repo, reverse repo and CRR) by 25 bps or may leave CRR alone and hike policy rates by 50 bps. A few other combinations are also plausible.

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Justifying the initial delay in policy action and the actual timing of the move, the RBI stated, “This mid-cycle policy action has been warranted by the evolving macroeconomic situation. Even as data for real GDP growth and WPI inflation became available by mid-June 2010, it was considered inadvisable to raise the policy rates as the financial system was dealing with liquidity pressures…Through the month of June, liquidity under LAF operations remained in deficit mode. Consequently, the call rate moved up significantly, resulting in an effective tightening at the short end of the yield curve. The liquidity situation has since begun to ease”.

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Since the RBI expects that liquidity may continue to remain tight for some time, it has also extended the additional liquidity support to scheduled commercial banks under the LAF to the extent of up to 0.5% of their net demand and time liabilities (NDTL) up to July 16, 2010. The measure was first put in place on May 26 after liquidity scenario tightened following the advance tax outgo and huge payments for the 3G spectrum by telecom operators and was earlier set to expire on July 2, 2010.

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While the two moves may seem contradictory, the RBI didn’t leave the matter to be explained by analysts and added in its statement, “It should be noted in this context that the liquidity easing measures have become necessary to manage what is essentially a temporary and unanticipated development. In no way should they be viewed as inconsistent with the monetary policy stance of calibrated exit, which remains focused on containing inflation and anchoring inflationary expectations without hurting growth”.

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