Should the RBI Cut Interest Rates Now?

Thu, 1 Dec Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

In a delayed response to demonetisation, the Reserve Bank of India has decided to raise CRR requirements by the banks.

The move to raise CRR to 100% did not just seem like a knee-jerk reaction. But the rationale behind it seemed like an afterthought. The higher CRR is applicable on incremental deposits raised between September 16 and November 11, 2016. That would mean deposits of Rs 3 trillion that accrued to banks during this period will be impounded by the RBI.

All this while banks were earning about 6.2% on the extra deposits with the RBI by way of reverse repo. Having to pay 4% on the savings accounts still earned them a decent spread. However, that will no longer be the case.

However, RBI calls this a 'temporary measure' to check excess liquidity.

The big question that comes up is - What would the RBI's stance be on the repo rate cut?

If someone would have asked this question a month ago, the answer would have been a big 'Yes'. However, now, with so much happening, there is much confusion on the RBI's stance. Some believe that it is no more an independent body.

With FCNR-B dollar outflows and the possible US fed rate hike, there are some concerns over the rate cut. With the high probability of the US Fed rate hike the rupee is struggling against USD and any further rate cut may result in an even weaker rupee.

However, the post-demonetisation wholesale price index (WPI) and consumer price index (CPI) inflation is likely to fall over the next couple of months.

Before demonetisation, the Indian economy was on the verge of a takeoff. A normal monsoon, seventh pay commission, and the RBIs stance towards the rate cut were a big positive.

There was an expectation of the consumer demand revival based on all these factors. But, with some drag due to demonetisation, the India growth story is under question.

The demonetisation will lead to a slowdown in the medium term. And with no rate cut, the situation would get worse.

We believe that in order to support growth and recovery in the economy and to negate some impact of demonetisation, the RBI should cut the policy interest rate.

With the weak rupee on one side and the probable slowdown on the other, it would be very interesting to watch how the RBI would balance its dual responsibility of exchange rate management and interest rate management.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Top Gainers TodayTop Gainers over 1-WeekTop Gainers over 1-MonthTop Gainers over 1-YearTop Gainers over 3-YrsTop Gainers over 5-YrsTop Losers TodayTop Losers over 1-WeekTop Losers over 1-MonthTop Losers over 1-YearTop Losers over 3-YrsTop Losers over 5-YrsOnly BuyersOnly SellersMost Active StocksMost Popular Stocks52 Week High Stocks52 Week Low Stocks

INDICESBSE (Rs 0 to 1)BSE (Rs 1 to 2)BSE (Rs 2 to 4)BSE (Rs 4 to 10)BSE (Rs 10 to 20)BSE (Above Rs 20)BSE - AllBSE-30BSE-100BSE-200BSE-500BSE AutoBSE BankexBSE Capital GoodsBSE Consumer DurablesBSE FMCGBSE HealthcareBSE ITBSE MetalBSE Oil & GasBSE PSUBSE TeckBSE RealtyBSE PowerBSE A GroupBSE B GroupBSE Mid-CapBSE Small-CapBSE Basic MaterialsBSE Consumer DiscretionaryBSE IndustrialsBSE UtilitiesBSE Sensex 50BSE Sensex Next 50BSE Bharat 22BSE 150 MidCapBSE 250 SmallCapBSE 250 LargeMidCapBSE 400 MidSmallCapBSE AllCapBSE LargeCapBSE SmallCap SelectBSE 100 LargeCap TMCBSE InfraBSE ManufacturingBSE CPSEBSE Private BankBSE Diversified FinancialsBSE MomentumBSE Low VolatilityBSE QualityBSE Enhanced ValueBSE Divident StabilityS&P BSE IPOBSE SMEIPOBSE 100 ESGBSE CarbonexBSE GreenexNSE (Rs 0 to 10)NSE (Rs 10 to 20)NSE (Above Rs 20)NSE - AllNSE-50NSE ITNSE Nifty Midcap 50NSE JR. NiftyNSE Bank NiftyNIFTY Next 50NIFTY 100NIFTY 200NIFTY 500NIFTY MidCap 100NIFTY SmallCap 250NIFTY SmallCap 50NIFTY SmallCap 100NIFTY LargeMidCap 250NIFTY MidSmallCap 400NIFTY AutoNIFTY Consumer DurablesNIFTY FinanceNIFTY FMCGNIFTY MediaNIFTY MetalNIFTY PharmaNIFTY Private BankNIFTY PSU BankNIFTY RealtyNIFTY Oil & GasNIFTY SME EmergeNIFTY CommoditiesNIFTY CPSENIFTY EnergyNIFTY India ConsumptionNIFTY InfraNIFTY MNCNIFTY PSENIFTY Serv SectorNIFTY100 Liquid 15NIFTY Midcap Liquid 15NIFTY Midcap 150 Quality 50NIFTY50 Equal WeightNIFTY100 Equal WeightNIFTY100 Low Volatility 30NIFTY100 Alpha 30NIFTY Alpha 50NIFTY Dividend Opportunities 50NIFTY High Beta 50NIFTY Low Volatility 50NIFTY200 Quality 30NIFTY 500 Value 50NIFTY 100 Quality 30SECTORSAgricultureAirlinesAluminiumAsset Management CompaniesAutomobilesAuto AncillariesBanks (Private)Banks (PSU)BankingCementChemicalsDefenceDiagnosticsDronesEngineeringElectric VehicleElectric Vehicle BatteryEnergy SourcesESGEthanolFertilizersFintechFMCGFoodGreen HydrogenHotelsInfrastructureInsuranceInvestment and FinanceInvITIT (Large)IT (Others)LogisticsMediaMetalMiningIndia's Big Tech StocksIndian PharmaMNC PharmaPSUPaintPaperPlasticPowerRating AgenciesReal EstateREITsRenewable EnergyRetailingSemiconductorShippingSteelSugarSupply ChainTelecomTextilesTravel Support Services

10 results 25 results 50 results 100 results All results

Indian Share Market Update: Top Gainers and Losers