Quarterly review of monetary and credit policy – Rea(d)dy to move northwards

The RBI guv in his review of monetary and credit policy has given an indication of the turbulent times ahead in terms of interest rate movement. I have been saying that the rates will move upwards and it will continue doing so for some more time. So what are the critical areas dealt with under this review:

Repo rate hiked by 0.25% – This makes money more costlier to the banks who will in turn raise the interest rates on their lending.So home loan borrowers may find their hope of building their dream house a bit more costlier.

Credit to cost more – Provisioning norms on credit card advances and personal loans imply that these loans will now become costlier – so stop rolling over that credit card dues of yours….

Extra provisioning by banks on their exposure to stock markets – this will make lending to stock brokers more expensive and may lead to dampening of the enthusiasm of the broking community.

Lower interest rates to NRI – a clear signal that our fx position is comfortable and we are not willing to welcome fx at very high rates of exchange. NRIs hit because they can no longer arbitrage by borrowing abroad at low rates and parking the funds in India at higher rates of Interest.

Extra provisioning on loans to builders – however with the growing demand for housing the builders might be able to pass on the increased cost to the buyer. But Hike in the home loan borrowing rate together with the higher pass on by builder will result in property rates shooting upward pushed by the higher cost of funds.

Short selling on government securities allowed on T+5 days – a very good move indicating that our markets are beginning to mature. This will provide a big respite to Primary dealers and Bankers who till now could not take any advantages of downward movement in prices of bonds. However the guv has placed restriction whereby in case of illiquid stocks an individual player cannot sell more than 0.25% of the outstanding stock (in liquid it is 0.50%)

A final hurray to the Tatas for aquiring CORUS albiet at a very high cost. It would now be very interesting to see how the Tatas are going to structure the financing aspect of this deal — students keep an eye on this


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