Bank stocks will keep doing well (Live mint.com 30th Jan 2008)What comes through from the Reserve Bank of India’s third quarter review of monetary policy statement is that on one hand governor Y.V. Reddy is still very worried about inflationary pressures in the economy, on account of rising money supply and high food and fuel prices.
On the other, he’s not particularly bothered about the slowdown in growth. The crux of the policy statement is this: “While the dangers of global recession are relatively subdued at the current juncture and consensus expectations seem to support a soft landing, the upside pressures on inflation have become more potent and real than before. Food and energy prices are set to impart a permanent upward shock to inflation globally and, in particular, in emerging market economies.” That’s the reason the apex bank has chosen perhaps to err on the side of caution, preferring to wait and watch.
What does that mean for the markets? The immediate reaction was a sell-off in the interest-rate sensitive stocks and in the bond markets, which had hoped for a rate cut. However, bond prices are likely to continue to be supported by cuts in the Fed funds rate on the one hand and bad news on the global economy, which is likely to increase the chances of the apex bank lowering rates in future on the other. The rupee will also continue to see upward pressure—the past few weeks have shown that the rupee has remained strong in spite of outflows from the stock markets. More
On the other, he’s not particularly bothered about the slowdown in growth. The crux of the policy statement is this: “While the dangers of global recession are relatively subdued at the current juncture and consensus expectations seem to support a soft landing, the upside pressures on inflation have become more potent and real than before. Food and energy prices are set to impart a permanent upward shock to inflation globally and, in particular, in emerging market economies.” That’s the reason the apex bank has chosen perhaps to err on the side of caution, preferring to wait and watch.
What does that mean for the markets? The immediate reaction was a sell-off in the interest-rate sensitive stocks and in the bond markets, which had hoped for a rate cut. However, bond prices are likely to continue to be supported by cuts in the Fed funds rate on the one hand and bad news on the global economy, which is likely to increase the chances of the apex bank lowering rates in future on the other. The rupee will also continue to see upward pressure—the past few weeks have shown that the rupee has remained strong in spite of outflows from the stock markets. More
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