GetPaidIndia.com

Monetary Policy Update (Jan 2010) - ICICI Direct

January 29th, 2010

Key announcements :

Hikes CRR by 75bps to 5.75% of NDTL effective 50bps from Feb’13 2010 and 25 bps from Feb 27,2010
SLR, reverse repo, repo rate kept unchanged
Ups end Mar-2010 WPI inflation estimate to 8.5% from 6.5% in October policy
FY10 GDP growth projection increased to7.5% from 6.0%
Cuts FY10 non food credit growth projection to 16% from 18% Oct policy
Cuts FY10 money supply growth estimate to 16.5% vs 17% earlier
Aggregate deposits likely to grow 18% FY10 in the system

Impact Analysis :

We believe CRR hike of 75 bps, without tinkering other key policy rates, on immediate basis is a step to  curb the excess liquidity in the system as the banking system are depositing over Rs.1 lakh crore on a daily basis under LAF window. The hike will suck away excess liquidity of Rs.36000 crore from the system which will help curb some inflationary expectations though we believe food inflation can’t be contained via CRR hike directly since it is purely a supply side phenomenon.

We prefer banks like SBI (which has ample liquidity of Rs.75000 crore to combat the hike), OBC (still available at <1x ABV), Bank of Baroda (Excellent results with strong asset quality). Among private sector we remain bullish on Axis Bank and HDFC Bank.

Media Contact: Saksham Maheshwari, IPO & Transactions Group, Adfactors PR Pvt Ltd, Shalaka, Maharshi Karve Marg, Cooperage, Mumbai 400021. Tel: +91 22 2281 3565, Fax: +91 22 2281 3569, Mob:+91 9930990927, Email: saksham.maheshwari@adfactorspr.com, saksham1985@gmail.com

Entry Filed under: Equity Markets, Others, Banks & NBFC