Business Standard

Comment: Pramit Jhaveri

'RBI reiterated its objective of reining in inflation'

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Business Standard Mumbai

The Reserve Bank of India (RBI), through its Monetary Policy announcement, reiterated its objective of reining in inflation, even if at the cost of moderating growth in the short term. At the same time, it has emphasised the importance of ensuring adequate liquidity for the markets.

The 50 basis points (bps) hike in repo and reverse repo rates, coupled with the interim measure of a 50 bps hike in bank savings rates and the further tightening of provisioning requirements on certain categories of non-performing and restructured advances announced in the policy, are likely to place some pressure on the profitability of banks. It is, therefore, reasonable to expect some transmission of these increased costs to borrowers through higher lending rates in the days ahead.

 

We welcome the changes in the operating procedure of the Monetary Policy framework, with the repo rate now becoming the only independent varying policy rate, enveloped in a 200 bps corridor around the reverse repo and marginal standing facility. Going forward, we expect the restrictions of bank investments in debt mutual funds will have a significant impact on money markets. We also expect an increased focus from RBI on credit delivery efficiency and processes and will undoubtedly continue to see more from RBI on the agenda of financial inclusion.

We eagerly await the final guidelines on credit default swaps, as we believe a liquid market will go a long way in allowing banks to better manage their risks in their investment portfolios.

Pramit Jhaveri, CEO, Citi India

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First Published: May 04 2011 | 12:31 AM IST

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