Mr. PH Ravikumar, MD, Capri Global Capital Ltd on the RBI's Q2 Monetary Policy Review 2013-14

The RBI measures are in line with market expectations and in fact market is relieved that the Repo Rate increase is not higher than the 25 basis points announced. End Quote

(1888PressRelease) October 31, 2013 - The measures to cut MSF by 25 basis points are to ensure that cost of liquidity is kept lower. In that sense with the change in regime at RBI, RBI is now looking at growth imperatives as well. Already with 0.5% of NDTL as overnight repo eligibility, another 0.5% of NDTL as export refinance and the now announced increase of term repo for 7 to 14 days eligibility (from 0.25% to 0.50% of NDTL), RBI is ensuring sufficient liquidity particularly during current festival season and as we enter the busy season.

With wholesale inflation being under 7% and consumer inflation stubbornly ay 9% plus levels with food inflation at decades high of 18% plus! there is no way interest rates are slated to come down, notwithstanding infusion of 14,000 crore plus infusion as capital in PSU banks.

One only hopes that the current somewhat benign crude oil prices, better control on CAD continues so that the external Rupee value is stable. All in all credit/funds flow to agri and SME sectors has to be ensured as one sees some signs of revival in services sector and good growth in agricultural sector.

The Reserve Bank of India's move to revise the repo rate upwards by 25bps has not been received well by the real estate development fraternity, which hoped for a rate cut or a status quo in a market scenario where banks and financial institutions have already started increasing lending rates for home loans. Given the festive season is traditionally the period where the real estate sales are driven up by sentiment, this revision is not welcome; reviewed objectively though, the decision of the Central Bank is justified given its primary focus on taming inflation. In the short term with financial institutions revising interest rates and on the back of already high real estate costs, demand for real estate will continue to be depressed.

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