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India's Bipolar Monetary Policy Continues: RBI Cuts Marginal Facility Rate Another 50bps To Boost Liquidity
It was less than four weeks ago that the Reserve Bank of India, under new head Raghuram Rajan, stunned the world on September 20 when it announced that it would both hike its repo and cash reserve rates in an inflation fighting step, while lowering its marginal standing facility rate by 75 bps to 9.5% in order to boost banking sector liquidity, hence "bipolar policy" of the kind most recently seen in Europe. Moments ago, the RBI once again showed that when faced with the option of consumer pain, i.e. runaway inflation, and preserving a banking status quo, i.e. liquidity, the central bank will always choose the latter, when in a surprising move the RBI cut its Marginal Standing Facility rate by further 50 basis points, from 9.5% to 9.0%.
Starting with the Mid-Quarter Review of September 2013, the Reserve Bank of India (RBI) began a calibrated withdrawal of exceptional measures undertaken since July 2013. This was done with a view to normalising liquidity conditions. Accordingly, the marginal standing facility (MSF) rate was reduced by 75 basis points from 10.25 per cent to 9.5 per cent. Furthermore, open market purchase operations of Rs. 9,974 crore were conducted today to inject liquidity into the system. On a review of evolving liquidity conditions and in continuation of this calibrated unwinding, it has been decided to:
- Reduce the marginal standing facility (MSF) rate by a further 50 basis points from 9.5 per cent to 9.0 per cent with immediate effect.
- Provide additional liquidity through term repos of 7-day and 14-day tenor for a notified amount equivalent to 0.25 per cent of net demand and time liabilities (NDTL) of the banking system through variable rate auctions on every Friday beginning October 11, 2013. The notified amount and tenor of the term repo auctions will be announced prior to the dates of the auctions.
It seems the liquidity crunch in India is worse than expected. As to whether this incremental boost of liquidity, now amounting to 125 bps in four weeks, will "spur" much needed deflation, or whether purchases of gold will once again be blamed for everything that's wrong under the Indian sun, that is a rhetorical question we are confident we don't have to answer.
Finally, putting the RBI's schizophrenic policy in perspective, watch the ongoing divergence between core cash/repo rates and the marginal standing facility, which continue their convergence path.
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Couldn't stop the inflow of gold......so we tried this crap.
I thought Japan would be first into the economic and currency collapse, but apparently India wants to beat them to it. And maybe the Fed wants to US to try to catch them...
India is full of wealth even if its currency is crap.
Reminds me of another place....
Oh, yeah! The whole fucking world.
The inflation must be from all of the dollars they import / earn with their call centers...that'll teach you to trade with the US!
First the bilateral currency swaps and swap facilities...then the trade agreements denominated in bilateral host currencies...then the requirements to be paid in anything other than USD. Then it's over.
So what is all the liquidity goes to bankrupt companies in crony corporates:
Stock price of Kingfisher Airlines: 93% down: https://www.google.com/finance?q=NSE%3AKFA&ei=PaxSUpiwF6aPwAPZ2wE
Jewellery, Gitanjal Gems 91% down : https://www.google.com/finance?q=BOM%3A532715&ei=sKxSUvD4EcOXwQPsVQ
Diamonds: 85% down : Winsome Diaminds: https://www.google.com/finance?q=BOM%3A507892&ei=eqxSUsixO7OBwAOafQ
Shipping: 88% down Varun Shipping: https://www.google.com/finance?q=BOM%3A500465&ei=46xSUsnNCMeKwAOn6wE
Just few hours ago, ICICI bank, the largest private lender, partly owned by govt of India declared massive loan losses in a major power plant helped previously by Enron: http://economictimes.indiatimes.com/articleshow/23632039.cms
But this headline is the funniest of the day and puts even Obama to shame:
One arm of the Govt selling a loss making gas unit to another arm of the Govt due to no real buyers:
http://www.mydigitalfc.com/petroleum/indian-oil-sole-bidder-haldia-petro...
Meanwhile, in southern state of India, which has over 85m people and was recently divided into 2 parts by the Federal Govt, power has been cut for last 2-3 days, shoot at sight orders issued, curfews placed, trains cancelled, cities shut down, neighbouring states impacted due to no movement of trucks and traffic for last 3-4 days, but REST ALL IS FINE:
http://www.hindustantimes.com/India-news/Hyderabad/Telangana-update-Powe...
The ad hoc moves by Govt of India in raising duties on TV and gold and placing curbs on foreign property buying to discounts on swaps to attract deposits, will have lots of unintended consequences creating unemployment, inflation and defaults among other things.
Perhaps at some point we’ll have HFCB ‘High Frequency Central Banking’ where rates are adjusted by algos in real-time.