Monetary Policy: RBI keeps policy rates, CRR unchanged
- RBI left policy rates and CRR unchanged. A moderate surprise was a 100bp reduction in SLR to 23%.
- FY13 growth estimate was lowered to 6.5% from 7.3% earlier while Mar-13 inflation estimate was revised up to 7% from 6.5% earlier. Monetary projections were left unchanged.
- Policy stance retreated to accord highest priority to inflation control followed by growth and liquidity. This contrasts with the Apr-12 policy where the first two priorities were altered.
- The guidance remained hawkish and made any easing conditional on fiscal progress and contingent upon unexpected deterioration of global situation.
- The moderate surprise was on account of SLR cut which is unlikely to be effective at this juncture with banks holding 4% excess SLR and outlook for credit growth and quality muted.
- Monetary policy seems ineffective for now as (1) High policy rates have had little impact on inflation, and (2) Onus of both growth and inflation lies on the government. Still, we believe, RBI needs to be more flexible in its approach in tackling the growth-inflation dilemma.
- Motilal Oswal believes that evolving growth-inflation situation increases the probability of a rate cut in coming policy events.
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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