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Sunday, July 31, 2011

What RBI has done?
The RBI raised the reverse repo by 100 basis points to 7% and marginal standing facility (MSF) rate to 9% maintaing a 200 basis point corridor with the repo bang in the middle.The banks set the benchmark interest rate by 50 basis points to 8%. The hike is much sharper than the expected 25 basis points. In 16 months the RBI has raised rates by 325 basis points. the RBI is hoping that it will put a lid on inflation by moderating demand but concedes that the strategy may not work effectively unless appropriate action is taken to deal with supply bottlenecks. Uncertainty over crude oil prices, foreign capital flows, food prices, the vagaries of monsoon, a rising subsidy bill and recent tax cuts on petro products will ensure inflation will remain elevated at least during the second quarter which ends on Sept 30.
Result: The EMIs of home or auto loan will automatically go up immediately.
For industrialist, cost of borrowings will go up leading to project delays.
For depositors, its a profit news as will earn more interest.

The Central Bank of India feels India is not in a slowdown mode and believes a little bit of growth can be sacrificed to deal with imperative of tackling inflation.
( repo is the rate at which the central bank provides short term cash to banks)

This news is so big that it made many like us to make many calls to our bankers, brokers, and accountants. This repo factor has changed the view of investment for sure specially for my kinda middle class investors & savers.

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