Oct 31: The golden sensex bird flapped its wing and took the Cash Reserve Ratio (CRR) hike in its stride. As the market is driven by Bull power it is all set to survive.
The Reserve Bank of India (RBI) on Tuesday announced the mid term review of its annual policy and raised its CRR by 0.5% to 7.5.
Banking shares were weak while Auto shares were the worst performers shedding 3 per cent after the announcement by RBI.
Raising a concern over the uncontrolled capital flows to real estate and equity markets, RBI, the central bank of India, raised CRR to suck liquidity from the market. It is believed that this initiative will help absorbing 16000 crore from the market. Though there was no major change in its long term and short term interest rates which is an indication to bankers that no funds will be available at a cheaper rate.
Cash Reserve Ratio is percentage of cash that is deposited with the RBI. The reserve ratio is used as a tool in monetary policy and can influence a country’s economy, borrowing and interest rates
Y.V Reddy, Governor of RBI said “At this current juncture the biggest challenge is the management of capital flows and the attendant implications for liquidity and overall stability”.
“The escalated level of prices of real state, role of private foreign equity and non-bank financial companies and the still strong pace of growth in bank lending to sector is a cause of concern,” he further added.
Showing his concern regarding the issue of interest rates on housing finance on the enhancement of monthly installment by some banks he said that though the banks are technically correct in doing so but they should justify this revision.
He asked bankers to respect the terms and condition with the customers.
RBI governor said that they are going to issue a circular asking bank not to charge customers a fee for closing the accounts with the bank.
And addressing the major issue of recovering agents he said that no force should be applied while recovering the funds.
Earlier it was expected that RBI will cut interest rate as U.S Federal Reserve has been known to ease monetary policy with higher rate cuts. Also the next reaction of the market will come after US Federal Reserve will decide on interest rate in the country in the scheduled meeting on Wednesday.
Though there was a fall in the sensex when the market opened initially it soon gained the momentum. Appreciating Indian Currency is also one of the main reasons which has kept the investor flocking.
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