RESERVE BANK OF INDIA

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Presented by::

Presented by: Pradeep kumar yadav pgdm

Slide 2:

WELCOME

RESERVE BANK OF INDIA:

RESERVE BANK OF INDIA HIKE IN INTEREST RATES

RBI:

RBI The Reserve Bank of India (RBI) is the Indian central bank. The RBI’s most important goal is to maintain monetary stability - moderate and stable inflation - in India. The RBI uses monetary policy to maintain price stability and an adequate flow of credit.

IMPORTANT TASKS OF RBI:

IMPORTANT TASKS OF RBI To maintain the population’s confidence in the system, to safeguard the interests of those who have entrusted their money and to supply. To manage foreign currency controls: facilitating exports and imports. Issuing money (the rupee) and adequately ensuring a high quality money supply; Providing loans to commercial banks in order to maintain or grow the Gross National Product (GNP); Acting as the government’s banker; Acting as the banks’ banker.

REPO RATE (repurchasing option):

REPO RATE (repurchasing option) Repo rate is the rate at which our banks borrow rupees from RBI. This facility is for short term measure and to fill gaps between demand and supply of money in a bank .

Reverse repo rate :

Reverse repo rate In condition of surplus of funds with commercial banks, they keep the surplus with RBI as against they get interest. The rate over which they get interest is called reverse repo rate. After hiking the rate, currently it is 7%.

CASH RESERVE RATIO (CRR):

CASH RESERVE RATIO (CRR) Cash reserve Ratio (CRR) is the amount of Cash(liquid cash like gold) that the banks have to keep with RBI. This Ratio is basically to secure solvency of the bank and to drain out the excessive money from the banks. If RBI decides to increase the percent of this, the available amount with the banks comes down and if RBI reduce the CRR then available amount with Banks increased and they are able to lend more.Present rate is (6%) announced

CURRENT STATUS:

CURRENT STATUS Key rates May 3rd 2011 June 16th 2011 CRR 6.00 6.00 6.00 Repo Rate 7.25 7.50 8.00 Reverse Repo 6.50 6.50 7.00

RBI LATEST INTEREST RATE CHANGES:

RBI LATEST INTEREST RATE CHANGES change date percentage july 26 2011 8.000 % june 16 2011 7.500 % may 03 2011 7.250 % march 17 2011 6.750 % january 25 2011 6.500 % November 02 2010 6.250 % September 16 2010 6.000 % july 27 2010 5.750 % july 02 2010 5.500 % april 20 2010 5.250 %

IMPACT OF HIKES:

IMPACT OF HIKES Economists said a hike in lending rates could put pressure on various loans by banks. “This is a clear signal to banks to hike lending rate. The RBI hiked its short-term lending rate or the repo rate by 25 basis points with immediate effect, a move that is likely to force banks to increase interest rates. The relentless price rise has prompted the Reserve Bank of India (RBI) to increase the lending cost but analysts said the move was unlikely to have any immediate impact on inflation.

EXPERT VIEWS:

EXPERT VIEWS Sujan Hazra , Chief Economist, Anand Rathi securities, Mumbai The central bank is now likely to pause on rates for rest of the current fiscal year. This is because there are some signs of slowdown in growth and incremental data is likely to show more softening of growth. Also, inflation is most likely to soften after September . "But, obviously, if inflation stays stubborn, the RBI may be forced to act on rates.“ Sean Callow, Senior Currency Strategist, Westpac Institutional Bank, Sydney "Definitely more aggressive than we expected given some mixed data recently. The RBI has been criticized for being behind the curve so this move will go some way to rebuffing such views. We had been looking for the repo rate to peak at 8 percent and will now review whether there needs to be yet more tightening in coming months."

EXPERT VIEWS:

EXPERT VIEWS Ramya Suryanarayanan , economist at DBS bank in Singapore "Quite a surprise. Clearly they are quite worried about inflation and the risk is they don't stop with this rate hike. Our rate forecast is under review - we had forecasted 8 percent on the repo rate as the peak by end-October 2011. "We think further rate hikes are going to slow growth considerably, below the RBI's forecast of 8 percent. Our forecast is 7.5 percent and such persistent rate hikes point to further downside risk to growth."

Slide 14:

Nikhil Nanda, Joint Managing Director, Escorts Ltd "It is unfortunate that interest costs are going up. It will lead to increase in various costs in terms of input costs, in terms of liquidity flow and more importantly, from the customers point of view. So my concern is more from the consumption side and this is across various segments be it cars, motorcycles and tractors. Since the interest rates have gone up by 50 basis points, any manufacturer will add the costs over a period of time and pass them to the customer." Arvind Parekh, Director, Jindal Stainless “ This was definitely higher than expectations but RBI is trying to stay ahead of the inflation curve even if it is at the cost of growth. Demand has most certainly taken a hit and even production costs will go up all around as borrowing costs will increase. We are strongly hoping that this will be the last increase the RBI will do as there has been some easing of inflation in the past month ” INDUSRTY VIEWS

CONCLUSION:

CONCLUSION Repo rate fluctuations which come from Banks in the form of increased interest rate for loans will directly impact common man. Knowing this can help an investor in many ways. The biggest benefit a person can from such fluctuations is if he time’s his decisions based on where the interest rates are inclined towards.

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