Why 25 bps CRR cut?
None expected 25 bps CRR cut; it was either status-quo or 25 bps rate cut. Though I was also with the crowd, I expected Reverse Repo rate to remain unchaned at 7% with squeeze in the LAF spread from 1% to 75 bps to retain RBI's priority on inflation over growth. But, the Governor was step ahead of others - delivering 25 bps CRR cut which means nothing when operating policy rate is already at Repo rate with system deficit expected to rise above 1% of NDTL in the coming days. Infusion of Rs.17K Crores liquidity is a very small monetary policy step (less than 2 rounds of OMO). But, Dr.Rao has got kudos from all by giving nothing into the market. That's why he is there with ability to balance expectations of politicians, business leaders and market participants.
Moses Harding
None expected 25 bps CRR cut; it was either status-quo or 25 bps rate cut. Though I was also with the crowd, I expected Reverse Repo rate to remain unchaned at 7% with squeeze in the LAF spread from 1% to 75 bps to retain RBI's priority on inflation over growth. But, the Governor was step ahead of others - delivering 25 bps CRR cut which means nothing when operating policy rate is already at Repo rate with system deficit expected to rise above 1% of NDTL in the coming days. Infusion of Rs.17K Crores liquidity is a very small monetary policy step (less than 2 rounds of OMO). But, Dr.Rao has got kudos from all by giving nothing into the market. That's why he is there with ability to balance expectations of politicians, business leaders and market participants.
- Governor has addressed the recent confrontation between the Chairman of SBI and one of the Deputy Governor on CRR cut. I am sure SBI Chairman will be pleased as the Governor has taken his side
- RBI's status-quo would have hurt the new FM who has shown his guts to bite the bullet despite stiff opposition from within and outside UPA. Now, Mr.Chidambaram would be happy that RBI has taken his side (as subsititute if not as active player). The take-away is that the substitute can be forced in at any point of time
- Business Leaders would be happy that RBI has considered growth pressures as a serious issue despite elevated inflation. Earlier, 100% focus was on inflation; now it can be seen as 80:20 priorty which is good for starters.
- Financial intermediaries (Banks) would be happy with CRR cut; small improvement in the bottom-line and lead-lag impact on interst cost over interest revenue. It would do good on the margins.
Moses Harding
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