Rajan effect: EMI increases,market falls

The EMIs on your home, car and personal loans are likely to increase, as a hawkish Reserve Bank of India governor Raghuram Rajan belied expectations on Friday by raising the repo rate, on which banks base their lending rates, by 0.25 percentage points to 7.50%.Soon after, Pratip Chaudhuri, chairman of State Bank of India, India's largest commercial bank, said he expected lending and deposit rates to go up.
This will greatly disappoint consumers, especially as it comes just ahead of the festival season when many buy cars, two-wheelers, TVs and other consumer durables with bank loans.
But Rajan, like his predecessor D Subbarao, is determined to rein in inflation, which, at the wholesale level, rose to 6.1% in August, above the RBI's comfort level of 5.5%.
At the retail level, it was at the still high level of 9.52% last month.
The stock markets had been hoping for a rate cut to generate demand and spur growth, which had fallen to a new low of 4.4% in the April-June 2013 quarter.
Hope belied, the benchmark BSE Sensex crashed 600 points within minutes of the RBI announcement after 11am before regaining some lost ground. But it still closed 382.93 points down at 20,263.71.
The rupee, which had rallied smartly to 61.77 per dollar on Thursday after falling to an all-time low of 68.85 on August 28, ended the day 46 paise down at 62.23 per dollar.
Sanjay Bhargava, general secretary of the Chandni Chowk Sarv Vyapar Mandal, a traders' association, said the RBI move to increase rates would definitely hit spending during the festive season.
"We will have to offer deeper discounts to woo buyers. But how can discounts help when buyers don't have money?"
Justifying the decision to hike the repo rate, Rajan said, "Inflation is high and household financial savings are lower than desirable." 

the Reserve Bank of India raised repo rate by 25 bps to 7.5 percent in its mid-quarter policy review. The move sent shockwaves through the investor community which culminated into sharp sell-off in the equity market. The policy, however, reduced the marginal standing facility (MSF) rate by 75 basis points from 10.25 per cent to 9.5 percent and lowered the minimum daily maintenance of the cash reserve ratio (CRR) from 99 percent to 95 percent of the requirement, effective from the fortnight beginning September 21, 2013. Consequently, the reverse repo and Bank Rate rates stand adjusted to 6.5 percent and 9.5 percent, respectively. The RBI ruled out additional change in minimum daily maintenance of the CRR but clarified that further actions need not be announced only on policy dates. Reacting to the policy announcement, the rupee fell 1 percent, bond yield rose to 8.3 percent, and share prices of banking stocks witnessed a sharp decline . Benchmark indices gave up all the gains accumulated in anticipation of a growth-oriented RBI policy and the positive outlook post Fed's no-taper policy on September 18 . Contrary to market expectations, the new governor Raghuram Rajan's maiden policy came in as hawkish, primarily because it maintained the traditional apex bank's views on (controlling) inflation. The RBI noted that WPI inflation, which had eased in Q1 of 2013-14, has started rising again as the pass-through of fuel price increases has been compounded by the sharp depreciation of the rupee and rising international commodity prices. "What is equally worrisome is that inflation at the retail level, measured by the CPI, has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence," Rajan's policy stated. Most of the economists polled by CNBC-TV18 were expecting the RBI to bring down the daily requirement to 90 percent of CRR, while a few expected it to come down below 90 percent. Jahangir Aziz of JPMorgan had opined that MSF should be brought back to its old level and instead repo rate should be hiked by about 50 bps. In a bid to control liquidity, the RBI had last month restricted banks from borrowing at 7.25 percent from the repo window. It had forced them to borrow at a higher rate of 10.25 percent from MSF.

Read more at: http://www.moneycontrol.com/news/economy/rbi-ups-repo-rate-by-25-bpsinflation-concerns-cuts-msf_953423.html?utm_source=ref_articleThe EMIs on your home, car and personal loans are likely to increase, as a hawkish Reserve Bank of India governor Raghuram Rajan belied expectations on Friday by raising the repo rate, on which banks base their lending rates, by 0.25 percentage points to 7.50%.

the Reserve Bank of India raised repo rate by 25 bps to 7.5 percent in its mid-quarter policy review. The move sent shockwaves through the investor community which culminated into sharp sell-off in the equity market. The policy, however, reduced the marginal standing facility (MSF) rate by 75 basis points from 10.25 per cent to 9.5 percent and lowered the minimum daily maintenance of the cash reserve ratio (CRR) from 99 percent to 95 percent of the requirement, effective from the fortnight beginning September 21, 2013. Consequently, the reverse repo and Bank Rate rates stand adjusted to 6.5 percent and 9.5 percent, respectively. The RBI ruled out additional change in minimum daily maintenance of the CRR but clarified that further actions need not be announced only on policy dates. Reacting to the policy announcement, the rupee fell 1 percent, bond yield rose to 8.3 percent, and share prices of banking stocks witnessed a sharp decline . Benchmark indices gave up all the gains accumulated in anticipation of a growth-oriented RBI policy and the positive outlook post Fed's no-taper policy on September 18 . Contrary to market expectations, the new governor Raghuram Rajan's maiden policy came in as hawkish, primarily because it maintained the traditional apex bank's views on (controlling) inflation. The RBI noted that WPI inflation, which had eased in Q1 of 2013-14, has started rising again as the pass-through of fuel price increases has been compounded by the sharp depreciation of the rupee and rising international commodity prices. "What is equally worrisome is that inflation at the retail level, measured by the CPI, has been high for a number of years, entrenching inflation expectations at elevated levels and eroding consumer and business confidence," Rajan's policy stated. Most of the economists polled by CNBC-TV18 were expecting the RBI to bring down the daily requirement to 90 percent of CRR, while a few expected it to come down below 90 percent. Jahangir Aziz of JPMorgan had opined that MSF should be brought back to its old level and instead repo rate should be hiked by about 50 bps. In a bid to control liquidity, the RBI had last month restricted banks from borrowing at 7.25 percent from the repo window. It had forced them to borrow at a higher rate of 10.25 percent from MSF.

Read more at: http://www.moneycontrol.com/news/economy/rbi-ups-repo-rate-by-25-bpsinflation-concerns-cuts-msf_953423.html?utm_source=ref_article