RBI’s Credit Policy 2011 March

Reserve Bank of India has come up with quarterly monetary policy review. It has raised Repo and Reverse Repo rate by 25 basis points. Hike is not enough to trigger a immediate rake hikes by banks but what it said in the report is a matter of concern. Monthly inflation for the month of February have come at 8.30 per cent which is 50 basis points higher than expectations.

Everyone was expecting a rate hike of 25 basis points but what more worrying is that RBI in its report has indicated towards a moderate slow down in the Indian economy. RBI has increased the March WPI inflation forecast by 100 basis points to 8 per cent.It has acknowledged the threat posed by increasing crude and commodity prices.

Experts believed that there is more hike to come. It may range anything from 50 to 75 per cent. RBI is focusing more on control inflation and even if it requires a moderate slowness in growth, it won’t hesitate. Rate hike will reduce the liquidity in the stock market. Markets reacted sharply to rate hike. BSE Sensex closed at 18149 down by 209 points and NSE Nifty closed at 5447 down by 65 points.

Interest rate sensitive sectors were main losers. Sectors like banking and auto were the main losers along with most of the other sectors like IT.

Crude price went up today after easing after two days.High inflation and unstable geo-political environment is extremely bad for investment climate. Investors are running away from the stock market and if there is a considerable dip in growth, that will severely impact Indian Stock Market. Although, the expectations include a slow down in economy only for short term and long term Indian growth story still remains intact.

This is not a good time for short term traders as markets are going bizarre and every dip is followed by a rally and then again, a dip. Markets are moving in a short range of few hundred points and it has become extremely difficult for an average trader to catch up.

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