Posts Tagged ‘Repo rate’

Banks May Not Up Interest Rates For Next Six Months

Banks May Not Up Interest Rates For Next Six Months

.

New Year has brought a good news for the Corporate India.

.

SBI Bank chairman has indicated that there will be no increase in interest rates for next six months despite inflationary pressure.

.

As inflation is rising, there was speculation going around that RBI, (in its review of monetary policy) might take measures to tighten the money supply which would have led to the hardening of interest rates.

.

As the global economy is still in the grip of recession, industry players feel that any hike in interest rates will affect the economic recovery in India.

.

Banks authorities and market analysts feel that there was surplus liquidity in the system and credit offtake was slowly picking up.

.

This situation of liquidity surplus will force banks not to increase interest rates, in current situation.

.

Because of this surplus liquidity, banks have cut deposits rates.

But they are not cutting the lending rates due to slow credit offtake, despite the speculation that RBI can increase key rates (repo or reverse repo) to contain inflation.

.

๐Ÿ™‚

.

In the eight months of the current financial year till December 4, while the deposits with the commercial banks rose by 3,69,535 crore, credit off take was only Rs 1,44,151 crore.

.

This forced the banks to park around Rs 100,000 crore with the RBI at reverse repo rate of 3.25%.

.

๐Ÿ™‚

When the interest rate condition was benign, Banks had cut their lending rates, particularly home loan rate.

This had helped reviving real estate market. The buyers started coming back and cement and steel sectors also started improving.

.

The recession did not hit India the way it had affected European countries last year.

.

There was only a slowdown in the growth rate which came down to 7% from 9%.

.

Market experts believe that withdrawal of stimulus package by the government should not be done in the prevailing situation, but should be phased out in staggered manner.

.

๐Ÿ™‚

NEWS CAPSULES

Hello Friends,

Last week witnessed lots of action with results of some major companies coupled with the RBI’s monetary policy.

Moreover, Week gone by, Indian markets turned distinctly weak as a sluggish global trend continued to cast a shadow on markets.

NEWS CAPSULES

NEWS CAPSULES

Having said that here we bring you latest updates from the Indian market and Industry.

NEWS CAPSULES

1.

A hawkish Reserve Bank of India (RBI), while staying away from hiking key rates like repo or reverse repo, hiked the statutory liquidity ratio(SLR) to 25% from 24%.

The cash reserve ratio (CRR), the minimum amount banks need to park with the RBI, was also left unchanged.

2.

Sun TV Network Ltd (Sun TV), owned by Kalanithi Maran, is looking at foreign partners to produce non-fiction contents.
The company joined hands with Dutch firm Endemol to launch a television game show.

3.

Tata Steel, the sixth-largest steel maker in the world, has posted a 49.49 per cent drop in net profit at Rs 902.94 crore in the second quarter, following a sharp fall in steel and ferro alloysโ€™ prices.

Total income fell 16.46 per cent to Rs 5,692.11 crore.

4.

The Anil Dhirubhai Ambani Group-controlled Reliance Natural Resources (RNRL) has posted a 5 per cent rise in net profit at Rs 21 crore for the quarter ended September 30, 2009, against Rs 20 crore for the corresponding previous quarter.

During the quarter under review, RNRLโ€™s total income decreased to Rs 66 crore from Rs 81 crore for the same quarter ended previous year.

The company posted an earning of Rs 0.13 per share for the quarter.

5.

Wipro Limited, backed by increases in price realisation, utilisation and fixed price contracts at its flagship IT services business, posted a 19 per cent increase in its net profit to Rs 1,162 crore for the second quarter ended September 30, 2009 as compared to the corresponding quarter of the previous financial year.

6.

United Spirits, India’s largest spirits firm, has posted a 25 per cent decline in net profit to Rs 69.6 crore for the quarter ended September 30, 2009 where as the same was at Rs 94 crore for the quarter ended September 30, 2008.

7.

Jet Airways, India’s largest private airline, reported net losses of Rs 406.69 crore for the second quarter ended September 20, down nearly 6 per cent from the same quarter last year.

The loss was mainly because of lower yield per seat following Jet’s decision to shift over half of its capacity to its low-cost service.

The shift of capacity to low-cost arm Jet Konnect was executed in May this year.

Jet Konnect fares are at least 25 per cent cheaper than full-service fares and a high load factor of 77 per cent did not offset the lower yield per passenger from cheaper fares.

๐Ÿ™‚

However, For More latest Industry, Gyan, Stock Market and Economy News Updates, Click here

Indian Corporates Pitched For a Cut in Interest Rates :)

Softer Interest Rate Regime

Stating that it was essential to maintain the growth momentum, India Inc described 6.8% rise in July industrial output as “evidence of recovery and pitched for a cut in interest rate.

๐Ÿ™‚

However, although performance in July has been lower than the previous month, vigorous increase in mining and manufacturing has kept up the level of industrial growth at a reasonable level of 6.8%.

๐Ÿ™‚

Additionally, it is said that the industrial economy is passing through a very important stage and FICCI has as a result advocated the need for a softer interest rate regime to assist the overall growth process and promote investments.

๐Ÿ™‚

“Although performance in July has been somewhat lower than the previous month…nevertheless robust growth in mining and manufacturing have kept up the level of industrial growth at a reasonable level of 6.8 per cent,” Ficci Secretary General Amit Mitra said in a statement.

๐Ÿ™‚

On the other hand, the RBI had cut reverse repo and repo rate by 25 basis points each in April whereas in June, the factory production was revised to 8.2% against 7.8% anticipated provisionally.

Moreover, Assocham stated that in future, the force of stimulus packages would also add on to the revival and India could move on to a close to 6.5% of GDP in the present financial year.

๐Ÿ™‚

Note : For More latest Industry,Market and Economy Updates Click Here

Factors that Move the Interest Rates โ€“ Part 2 (MONETARY POLICY)

Monetary Policy

In previous Blog we have discussed about the major factors responsible for the change in interest rates and price of bonds indirectly.

All those three factors like Inflation, Currency and Liquidity have been touched upon in last blog.

๐Ÿ™‚

Now time to look into another major factor which causesย  movement in the interest rate. The factor i am talking about is Monetary Policy. ๐Ÿ™‚

Monetary Policy: The RBI controls liquidity largely through monetary policy instruments โ€“

(i) CRR & SLR โ€“ CRR (Cash Reserve Ratio) refers to a portion of deposits (as cash) which banks have to maintain with the RBI.

Banks are also required to invest a portion of their deposits in government securities as a part of their SLR (Statutory Liquidity Ratio) requirements.

If either of these is increased, liquidity tightens and so interest rates harden (increase).:(

Recently, RBI has reduced both these rates to infuse liquidity in the system โ€“ CRR is 5% (down 250 bps from March ’08) and SLR is 24% (down 100 bps).

๐Ÿ™‚

(ii) Reverse repo rate โ€“ it is the overnight interest rate that a bank earns for lending money to the RBI in exchange for G-Secs.

A hike in reverse repo rate increases interest rates. Currently, reverse repo rate stands at 3.25%.

๐Ÿ™‚

(iii) Repo rate โ€“ it is the discount rate at which a central bank repurchases government securities from the commercial banks.

To temporarily expand the money supply, the central bank decreases repo rates (so that banks can swap their holdings of government securities for cash).

To contract the money supply, it increases the repo rates. The current repo rate is 4.75%.

๐Ÿ™‚

(iv) OMO and MSS โ€“ OMOs (Open Market Operations) are outright transactions in government securities.

When the RBI buys G-Secs, it is injecting money into the system, hence, increasing liquidity, which softens (reduces) interest rates.

When the RBI sells G-Secs, it sucks out excess money from the system i.e. reduces liquidity in the system which hardens interest rates.

MSS (Market Stabilisation Scheme) is the issuance of treasury bills and dated securities by way of auction by the RBI.

This affects interest rates in the same manner as OMOs.

๐Ÿ™‚

Having collected updates on where the above parameters stand, one can have a better understanding of why interest rates are at their current levels, as well as which direction they are expected to move in.

๐Ÿ™‚

If most of them indicate that a rise in interest rates is expected, bond prices are likely to fall in the future.

On the contrary, an expectation of a fall in interest rates means bond prices will rise.

A word of caution here though โ€“ timing interest rate changes is difficult. This is because there is a low likelihood of being able to precisely predict the movement in the factors discussed above.

So in order to minimize interest rate risk, one should ensure that the bond portfolio is diversified across various maturities.

๐Ÿ™‚

4 Monetary Policy: The RBI controls liquidity largely through monetary policy instruments โ€“

(i) CRR & SLR โ€“ CRR (Cash Reserve Ratio) refers to a portion of deposits (as cash) which banks have to maintain with the RBI. Banks are also required to invest a portion of their deposits in government securities as a part of their SLR (Statutory Liquidity Ratio) requirements. If either of these is increased, liquidity tightens and so interest rates harden (increase). Recently, RBI has reduced both these rates to infuse liquidity in the system โ€“ CRR is 5% (down 250 bps from March ’08) and SLR is 24% (down 100 bps).

(ii) Reverse repo rate โ€“ it is the overnight interest rate that a bank earns for lending money to the RBI in exchange for G-Secs. A hike in reverse repo rate increases interest rates. Currently, reverse repo rate stands at 3.25%.

(iii) Repo rate โ€“ it is the discount rate at which a central bank repurchases government securities from the commercial banks. To temporarily expand the money supply, the central bank decreases repo rates (so that banks can swap their holdings of government securities for cash).

To contract the money supply, it increases the repo rates. The current repo rate is 4.75%.

(iv) OMO and MSS โ€“ OMOs (Open Market Operations) are outright transactions in government securities. When the RBI buys G-Secs, it is injecting money into the system, hence, increasing liquidity, which softens (reduces) interest rates. When the RBI sells G-Secs, it sucks out excess money from the system i.e. reduces liquidity in the system which hardens interest rates. MSS (Market Stabilisation Scheme) is the issuance of treasury bills and dated securities by way of auction by the RBI. This affects interest rates in the same manner as OMOs.

Having collected updates on where the above parameters stand, one can have a better understanding of why interest rates are at their current levels, as well as which direction they are expected to move in. If most of them indicate that a rise in interest rates is expected, bond prices are likely to fall in the future. On the contrary, an expectation of a fall in interest rates means bond prices will rise. A word of caution here though โ€“ timing interest rate changes is difficult. This is because there is a low likelihood of being able to precisely predict the movement in the factors discussed above. So in order to minimize interest rate risk, one should ensure that the bond portfolio is diversified across various maturities.