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RBI Rate Cuts ................but gives a weak possibility of further rate cut

RBI came out with a hawkish monetary policy slashing the repo rates by 25 basis points to 7.25 percent. RBI governor, Mr D Subbarao, said that the WPI inflation at 6 per cent turned out to be lower than the indicative projection of 6.8 per cent, mainly due to a sharp deceleration in non-food manufactured products inflation in the second half of the year.

The global inflation outlook for the current year appears more benign compared to last year on expectations of some softening of crude oil and food prices. Accordingly, imported inflation is likely to be lower provided the exchange rate remains broadly stable. Indicators of corporate performance, industrial outlook and PMIs are pointing to a declining pricing power.

On the other hand, food inflation is likely to be a source of upside pressure because of persisting supply imbalances. Also, the timing and magnitude of administered price revisions, particularly of electricity and coal, will impact the evolution of the trajectory of inflation in 2013-14.

The premier bank has said that the economic activity is expected to show modest recovery over last year. The outlook for Indian activity remains subdued and growth in services and exports sector look sluggish. Baseline GDP growth for 2013-14 is expected at 5.7 percent.

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  1. Abhikhos273 May 2013 at 01:27

    Rate sensitive sectors like banks, realty and auto, which had run-up sharply earlier today, came under selling pressure soon after the Reserve Bank of India (RBI) slashed repo rate by 25 bps.

    Cash Reserve ration ( CRR) was maintained at 4 per cent.

    The Sensex has already rallied 1500 points over the last three weeks and rate cut expectations were very strong, with more than 95 per cent of economists expecting a 25 bps repo rate-cut.

    Most economists in an ET Now poll had already factored in a 25 basis points rate cut.

    "The RBI rate cut was there in the present prices and the positives had already been built into the system. The private sector banks and NBFCS have come up with their results, which have more than met analyst expectations," said Vishal Jajoo, Senior Research Analyst at Nirmal Bang Securities.

    "Scope for further monetary easing depends on inflation, CAD and fiscal gap. This is a function of various elements, mainly key commodity prices like gold and crude oil," he added.

    At 11:30 a.m., the S&P BSE Sensex was down 0.15 per cent, the S&P BSE Bankex declined 1.7 per cent, the S&P BSE Realty Index was trading 1.2 per cent lower and the S&P BSE Auto Index declined 1.2 per cent.

    The S&P BSE Banking Index was trading 1.7 per cent, led by losses in SBI was trading 2.4 per cent lower at Rs 2242, ICICI BankBSE -2.88 % plunged 1.6 per cent to Rs 1153 and PNBBSE -2.86 % dropped 2.2 per cent to Rs 751.

    The S&P BSE Realty Index was down 1.2 per cent, led by losses in HDIL, which was down 2.85 per cent at Rs 52.80, DLFBSE -2.74 % plunged 1.76 per cent to Rs 235 and Godrej PropertiesBSE -2.47 % dropped 1.9 per cent to Rs 617.50.

    The S&P BSE Auto Index recovered from day's low and was trading 0.65 per cent lower, led by losses in Tata MotorsBSE -3.49 % plunged 1.8 per cent to Rs 291, Bajaj AutoBSE -2.67 % dropped 1.5 per cent to Rs 1380 and Ashok LeylandBSE -1.09 % dropped 1.1 per cent to Rs 22.70.

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