RBI cuts repo rate by another 50 basis points and CRR by 100 basis points

It is a timely move that RBI did finally by reducing the repo rates by 50basis points and cut with CRR by 100 basis points effectively bring additional liquidity to the system by another Rs85000crore. 

As the major impact was to real estate sector already the major real estate companies like Parsvanth developers have very openly sought that we don't require any bailout package from the government as they  did for the aviation sector(extending credit terms) but we require only policy change like a steep cut in CRR and Repo rate cut to 5.5%.Also he had indicated that his organization will identify 15% of the non performers and retrench them which is inevitable.

The worst hit sector was real estate sector and the big players started feeling the heat and openly accepted the crisis in terms of liquidity.This move by the government would definitely boost the sentiments in the real estate sector.Inspite of the banks move on increasing the margin money for the Home loan from 20-25% and to maximum of 40% will not cause much impact.The good news is  for the consumer in the personal,carloan and home loan segment could see the real benefit in the coming months.

Investing in stocks would be an attractive option, as the deposit interest will also come down in the future.It is a positive cue and definitely boost the sentiments of the stock market in the coming months.

Thanks to recession as the figure sequentially started falling down on the fourth week of October as the global commodity prices also falling down then it is a positive sign for the Indian economy.

The only one left out is the correction of the fuel prices ,there might be certain factors petroleum ministry might look into .One is the OPEC countries stopped producing 1.5 million barrels a day from November first onwards.Already crude price is highly fluctuating and impact on the decision of OPEC will reflect after one or 2 months.Moreover average price for  the inventory built up over months is also a concern.

Though the crude price rules around $67 a barrel the oil marketing companies are still making a loss and the government is sharing the loss by way of subsidy.

Even then only pending action  from the government is the reduction of the Petrol and diesel price.Once it is through we can see the substantial impact in the inflation index. Then it would definitely vouch the Indian economy is stronger.

To combat liquidity crisis Repo rate cut by RBI

The drastic measure taken by RBI and the finance ministry to implement the unexpected CRR cut and the much expected repo rate 100 basis point(50 was the expected one).RBI has explained in the staetment.It is sure as per experts the cost of money will be cheaper for the banks and the lending rates will reduce with a 6 months time horizon.

"India too is experiencing the indirect impact of the global liquidity constraint as reflected by some signs of strain in our credit markets in recent weeks. In order to alleviate the pressures and, in particular, to maintain financial stability, the Reserve Bank has decided to reduce the repo rate under the Liquidity Adjustment Facility (LAF) by 100 basis  points to 8.0 per cent with immediate effect."

Also the Governor has said."Risk aversion, deleveraging and frozen money markets have not only raised the cost of funds for Indian corporates but also its availability in the international markets. This will mean additional demand for domestic bank credit in the near term. Reduced investor interest in emerging economies could impact capital flows significantly. The impending recession will also impact on Indian exports."

Finance Minister P Chidambaram said that rate cut is in line with maintaining growth and moderating inflation. India's inflation reached its four-month low last week at 11.44% as a result of fall in the prices of various fuel products. Chidambaram also added that the repo rate cut will help enthuse the investors.

The repo rate cut is in addition to the number of monetary expansion measures taken by RBI in the last one month to increase the liquidity in the Indian banking system.

RBI has cut the CRR rate in last 15 days by 2.5%, releasing about Rs 100,000 crore into the system. Last week it also said that it will hold an additional 14-day money auction to help banks meet the cash requirements of mutual funds that are facing high redemption pressure from investors.

Finally what it means for the depositors whether they will enjoy the 10.5% intrest rate for the deposits  and the already overburdened middle class due to interest rate hikes in housing loans.Put a pause and see