Yadnesh Chavan, Fund Manager, Fixed Income, Mirae Asset Global Investments (I) Pvt. Ltd. says “India’s central bank cut the amount of deposits lenders need to set aside as reserves for the first time since 2009 signaling a moderation in its hawkish policy stance.
The Reserve bank of India reduced the Cash Reserve Ratio to 5.5 percent from 6 percent. The move would add around 320 billion rupees into commercial banks and help manage the current liquidity deficit of over 1.2 trillion rupees.
The reserve bank will now wait for data points on the current year fiscal slippage and level consumption spending in FY 13 to gauge government borrowing requirement in FY 13 and thereby draft its more clear perspective on the liquidity and inflation management front. In terms of rate cuts it may not consider the same unless strong signs of fiscal consolidation emerge.
The coming months will witness liquidity pressure and the central bank is expected to continue with Open Market Operations (OMOs) to infuse more liquidity into the system.”
The RBI has left the repo rate unchanged at 8.5% since late October after raising it 13 times since March 2010. The reverse repo rate stands steady at 7.5%. The marginal standing facility rate is at 9.5%.