RBI rate hike
What are the important things in the RBI announcement?
They increased the repo and reverse repo rate by 25 basis points.
What does it do for you the common investor. Nothing. Absolutely nothing.
Do not expect the market to react, I think the reaction is over. What else did he say?
- RBI is wanting to find inflation at 4%. However it is currently at 4.7% headed to 4.8%. Remember this gov is concerned about the deficits, so inflation has to be a major concern.
- They find the growth trajectory at 7.3-7.4% growth in GDP. These are stunningly good figures and a few more such quarters will pull a lot more people from the bottom of the pyramid. Not sure whether enough investors appreciate that a big country growing at such a rate for a long time is really marvelous. Do not go by the political rhetoric. This is a nice big number.
- I guess the rate hike was to negate the price rise in oil, the higher MSP – and the general expectation of the election oriented thinking of the party in power (any party would be largesse oriented.
- Farm loan waiver is creating such a poor banking impact – I met a farmer’s son who said…my dad has taken Rs. 50,000 loan for the house…we know in a year or 2 there will be some flood in Orissa and the loan will be waived off. So farm loan waiver (which by the way is much bigger under NDA than it was under UPA 2), oil price hike, higher msp leading to higher rural inflation (good for consumer oriented companies), …
- Expect some rating upgrades, importance of mutual funds as a fund provider for corporate India, etc. augur well.
Mr. Barua of Hdfc bank feels that the Governor is taking a longer term view of inflation, and not he is not just being data driven. Also he does not see this rate hike as a method of defending the currency. The currency has to depreciate – esp if the US interest rates go up, and US has a good growth rate. If the carry trade reduces, we will see pressure on the rupee. Hdfc bank’s view is that Sep and Oct inflation numbers will decide on whether there will be more hikes in the calendar year.
Relax. Continue your sip.
Pramod
About Farm Loan, I have many friends from the so called farmer community. Now the general consensus among the “farmers” is to take loan even if someone does not need it, in the hope for a waiver. This is a nice and easy way to make some easy bucks. Second phenomenon is ‘Grain Carry Trade”. Earlier farmers used to sell surplus crops. Now Farmers sell their entire crops to FCI at MSP which is Rs. 20/kg for wheat and then buy for their consumption from PDS @ 3/Kg. Nice and easy.
Krish
Farmers are also getting subsidized seeds and fertilizers including subsidized state govt loans during crop season. Ofcourse there is no power bill and water bills. Huge tracts of land are getting covered under watershed management programs or state run irrigation projects these years. Infact this has become the goal of all the state govts across India. Last but not the least, farmers are demanding MSP for each and every crop on the basis of highest rate in last 5 years. Added to all these, one of the state govt (Telangana) recently came out to dole out 8K per acre per year amount to every farmer and also rolling out crop insurance. I could see golden days are back to farmers.