Key share indices ended over 1 per cent higher on Tuesday led by rate sensitive shares as the sluggish April IIP data re-inforced market expectations that the central bank could cut key policy rates and also lower the cash reserve ratio to boost growth.
The key short-term lending rate (repo rate)has been hiked by 0.25 pc to 7.50 pc.
Mukherjee advised European and American policymakers to follow regulatory mechanism on the lines of the Indian banking system.
CRR is the proportion of deposits each bank must keep in the form of cash.
Probably 35 bps. There could be even an encore in February 2023 to take the policy rate to 6.5% before the financial year ends, predicts Tamal Bandyopadhyay.
Cash-strapped real estate firms are resorting to short-term borrowings of funds to complete ongoing projects as the economic slowdown has virtually halted demand for properties, freezing cash flows.
"The government has always believed in stable policies. I am sure that this will continue in the coming budget," ICICI Bank's non-executive chairman, K V Kamath, told reporters on the sidelines of a function organised by the Institute of Chartered Accountants of India in Mumbai.
Inflation target remains 5% for January 2017.
Moreover, the RBI's use of reserve ratios, statutory liquidity ratio and cash reserve ratio as monetary policy tools affected banks' profitability: No interest is paid on CRR balances, and the interest yield on SLR securities is far lower than the yields on advances.
While the IT stocks traded firm since the start of the day, the BSE IT index soared to a 10-year high.
With credit demand picking up and liquidity crunch yet to ease, bankers are expecting a cut in key policy ratio - Cash Reserve Ratio (CRR) - by one per cent in the mid-term monetary policy review by RBI, a top bank official said.
The RBI, however, kept other key rates and ratios like repo, reverse repo and cash reserve ratio unchanged.
The RBI has, however, left the cash reserve ratio or bank rate, which is the amount of cash that banks have to park with the central bank to maintain prudential norms, unchanged at 6 per cent.
The bank kept cash reserve ratio unchanged at 6 per cent.
Days ahead of the annual monetary policy, trade bodies today urged the Reserve Bank not to hike its key-rates as they fear a further tightening could push lending rates up and thus hamper growth.
The Reserve Bank of India has launched an assault on inflation by increasing the cash reserve ratio (CRR) 75 basis points to 5.75 per cent. While sounding upbeat on economic growth, the central bank has kept the door open for an increase in interest rates even before the annual policy statement in April.
The NSE Nifty slumped to a low of 4,833, and finally settled with a heavy loss of 155 points at 4,853. The index has shed 422 points (8%) in the last six day. The market breadth too was extremely bearish, with nearly eight stocks for each advancing stock. Out of 2,944 stocks traded, 2,582 declined and 337 advanced on Wednesday.
NBFCs seek level playing field with banks in terms of treatment of NPAs, TDS on deposits, removal of service tax on HP and lease transactions, refinance mechanism akin to NHB etc
What impact will this hike in RBI rates have on the banks and industries? What do the bankers have to say? How is India Inc reacting to the rate change?
In short, if India Inc lives up to the expectations in the required measure of resilience, innovation, initiative, imagination and leadership, it can help harmonise the imperatives of growth with control of inflation.
At its monetary review on Tuesday, the RBI raised the statutory liquidity ratio by 1 percentage point to 25 per cent and discontinued the special repo facility for banks to provide liquidity to mutual funds and others.
The central bank raised statutory liquidity ratio, the portion of deposits that banks are required to keep in government securities, by 100 basis points to 25 per cent. Other key rates were unchanged.
The RBI is likely to raise CRR, the portion of funds that banks have to keep with the regulator, by 50 basis points in its forthcoming monetary review next week and signal tight monetary measures, says Moody's.
The apex bank hiked its repo, reverse repo (overnight lending and borrowing rates) to 5.25 per cent and 3.75 per cent, respectively, while the cash reserve ratio, or the portion of deposits banks park with RBI, to 6 per cent in line with analysts' expectations.
Hike in CRR to suck out Rs 12,500 crore from the banking system.
These are the highlights of the seventh bi-monthly monetary policy statement for 2019-20 by the RBI amid COVID-19 pandemic:
Property developers expect to boost sales of homes and borrow funds at lower rates after the Reserve Bank of India on Friday reduced its key benchmark rate and cut the cash-reserve ratio requirement in a bid to help banks lower interest rates and lend more to cash-starved sectors, including the real estate. They are hopeful of attracting more overseas investment in projects as demand revives.
In January, the RBI hiked its cash reserve ratio or the amount banks keep with the central bank by 0.75 per cent to 5.75 per cent.
Former Reserve Bank Deputy Governor S S Tarapore on Thursday said that the apex bank should not lower its repo and cash reserve ratio rates in its forthcoming monetary policy review.
The Reserve Bank on Friday upped the cash reserve ratio from 5 per cent to 5.75 per cent, a move expected to flush-out Rs 36,000-crore (Rs 360-billion) from the system.
According to Corporation Bank executive director Asit Pal, there would not be any change in prime lending rate as there is sufficient liquidity in the system and credit offtake is also muted at this point of time.
The economists, polled by industry body Federation of Indian Chambers of Commerce and Industry, said the RBI may raise the cash reserve ratio, which is a portion of deposits that banks keep in cash with the central bank, by 50 basis points to 5.5 per cent, although this would have no impact on containing inflation.
Inflation is likely to peak at 8.7 per cent by end-March and the Reserve Bank is likely to begin tightening its monetary policy from its January policy review itself, a report by Bank of America Merrill Lynch (BofAML) has said.
The central bank may hike CRR by 50 bps; some economists expect a rise in policy rates too.
He said despite liquidity injection by RBI, borrowers should not expect reduction in interest rates for short- and medium-term loans. He, however, added that the measures announced by the government and RBI have starting yielding results.
Bankers have suggested that the Reserve Bank of India lower the statutory liquidity ratio and the cash reserve ratio as the present liquidity crunch is affecting their business. During the mid-term resource management discussion with the RBI team led by Deputy Governor Rakesh Mohan, the country's top bankers said the tight liquidity condition was pushing up the cost of funds and putting further pressure on margins.
In addition, bankers also told Business Standard that they did not expect the central bank to hike policy rates or the cash reserve ratio in the third quarter review scheduled for October 27 as inflation was not rising fast though inflationary expectations were there.
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