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RBI Dont Play T20.....

 January 24, 2012 01:04 PM

Today RBI went for a CRR cut which was expected but went expecting suddenly for the market. Well Currently RBI has reduced the CRR from 6% to 5.5% which will lead to inflow of Rs.32000cr in to the banks pockets. Now market speculators will turn out the meaning that RBI has injected money for lending into the system. But I am sorry to make an analysis that RBI has injected the money in order to make Banks adjust their Balance sheet against rising NPA. Further this will help them to manage the tier I capital norms of the banks after the implementation of Basel III.
In my research find RBI steps of actions towards monetary balance is very much in line with India's economic growth. I don't find any reason why RBI should reduce the repo rates and the reverse repo rates. It is very much premature to roll back the repo rates as inflation is still way above the danger zone. Even I find that this CRR might go for spooking up the inflation devil acting as a steroid. Since the thumb rule` of CRR is that when inflation rises CRR is the common weapon used to control inflation. Reduction of CRR will give Rs 32000 cr to banks to lend but they will not lend and further even if it's being given for lending Indian corporate still finds its high cost of loans. RBI has made one thing very clear that its policies will depend and will be designed depending upon the policy actions required for the Governments.
The present scenario of the economy does not support for repo rate cuts. Since NPA are increasing and that is backed by lack of policy actions from the governments .Government has borrowed too much and this has spooked the system with funds and resulting increase in inflation. Currently the Government of India will borrow Rs 400 billion more than its revised borrowing target of Rs 4.7 trillion in the bond market by March for the current financial year 2011-12.Hence RBI actions regarding repo rates are next to negligible. India needs policies to draw investments and then only repo rates real action can be found. If currently RBI goes for an repo rate reduction then the liquidity will find ways into the existing business environment and not into new projects. Further RBI has reduced the outlook for india's GDP growth from 7.6% to 7% which eliminates the scope of repo rate cuts in the near future.
If today the government of India comes up with New land Acquisition Bill, DTC, GST, New Companies bill 2011 then repo rates reduction will not be required to find India's economic growth. Moreover all these new bills will open up investment opportunities, consumption and savings of the economy resulting a boost to RBI policy actions.

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