Wednesday, October 30, 2013

RBI announcements to bring a temporary cheer?

As expected yesterday, the RBI chief did come out with some key measures which will be instrumental towards curbing inflation. He increased the repurchase rate by 25 basis points, or 0.25 percentage point, yesterday to 7.75 percent, the second increase in two months. He also cut the marginal standing facility, or MSF, and bank rates by 25 basis points to 8.75 percent. These steps will ensure that there is enough liquidity in the market, observed Sachin Karpe.

In developing economies, delay in stimulus tapering by Fed has managed to bring a lot of cheer. However, one must not forget the challenges posed by domestic woes. Capital flows will remain intact but they will need a domestic economy to keep them coming if Fed tapers the stimulus, as and when, Sachin Karpe opines.

India’s industrial activity has weakened due to less consumer demand suffered by inflation. Thankfully, an expected rise in agriculture due to healthy rains this year has contributed towards the economic growth to a certain extent. Add to it, increase in export growth and signs of revival in service sector has added some boost.
Developmental and regulatory guidelines will help revive the economy to a greater extent. Raghuram has been successful so far. Some steps like new banking license and retail inflation indexed securities are two measures that will remain eagerly awaited, said Sachin Karpe. These steps will have a real and a more effective impact which will be long term.

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