Third Quarter Review of Monetary Policy - Jan 2010

The RBI will review the Monetary Policy (III Quarter) on 29th Jan 2010. It has more impact on the personal finance and liquidity.

I feel that the Cash Reserve Ratio (CRR) would be increased by 50bps from the current level of 5%. Am not expecting any change in the repo or the reverse repo rates. Even if there is a change, it would not be more than 10bps.

What are the implications as an individual? As we all know that when the CRR is increased, the banks lending quantum decreases. So, they require more funds to meet the demand. In that process, the interest rates on Fixed Deposits will go up slightly. People also prefer Bank FD from a safety perspective.

With tighter norm, the liquidity will be curtailed and spending will come down. Since the spending decreases, the market will lower the prices to attract spending. By this, the inflation will also come down.

Hence, the move of RBI has more impact on the economy as a whole. The III Quarter review policy will be announced on 29th Jan 2010. So, we can see some positive movement in the Share market also from Feb. Again, it is time for budget and depending on the budget measures, the market will make its way.

In all, I am confident that this bull run will continue and even if the buget is not that good, it will be a temporary impact on the stock market.

Let us wait till 29th Jan 2010.

In the meantime, may I request your views / thoughts on how the RBI review outcome.



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