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Wednesday, January 14, 2015

Is 25 bips Repo Rate Cut Enough?

Finally the RBI Governor bowed to sentiments,sharp fall in crude globally and inflation in India to cut the Repo rate by 25 bps.

It is nowhere enough to kickstart growth although there are signs that he might cut the rate further in February or March.If we look to pick the positives,the direction in which this step takes Banking Policy is noteworthy.

WPI for December was .11%
Retail inflation climbed marginally from 4.4 to 5%

Some indicators though remain a double edged sword:-

Fall in crude,Brent is trading between $45-48
Copper crashed to a six year low


The oversupply of crude in the Eurozone aligned with fears of stagflation,low growth,China's hard landing are making themselves reheard.
Low crude prices are as bad for Global Growth as is high inflation.

Domestically the Banks Balance sheets will have a negligible effect unless they can clean up their BS of non performing assets before embarking on ambitious expansions.Feeling is that this cut in Repo will not be passed on to the public at large.

Sentimentally good move.But at the moment that is all it is.