RBI reduces CRR, Sandy lashes New York

There have been two major events effecting our economy happened today...

First Event: RBI reduces CRR

RBI has infused about Rs 17500 crore into the system by reducing CRR by 0.25%. The news was not received very well by the bourses that were looking forward to and had actually factored in a reduction in the rates.

BSE tumbled about 200 points while NSE tumbled below the 5600 mark.

Second Event: Hurricane Sandy has lashed the East Coast of the USA

Hurricane Sandy  battered the East Coast of the USA. It has ravaged New York the world's biggest and busiest commercial center. Reports of several deaths have also started trickling in taking the toll higher with each report.Once Sandy passes, the actual reports of losses of property and life will start coming in.

Power outage has impacted more the 6 million people.

New York Exchange was shut down for the second consecutive day. Trading is expected to resume on Wednesday.

Is Indian Economy crumbling!

Indian economy has begun to show signs of fatigue. It is failing on growth and it is failing on inflation.

The IIP numbers have fallen to new lows. The growth was on 1.9% for September in contrast to the same period last year when the IIP growth stood at 6.1%. This is the lowest this figure has gone in the last two years. The other negative indicators are the state of our country's private airline companies. All are reporting losses. The crisis at Vijay Mallaya's Kingfisher is  the worst among the lot.

Even as industrial growth is falling, inflation has made life difficult for the common man, who in turn has started to mount pressure on the Government. RBI has repeatedly raised its repo and reverse repo rates in a bid to control the beast called inflation - that refuses to be tamed. Each time the "great" economists of our country release statements claiming that inflation will come down, the beast retaliates with an even bigger leap upward.

The signals being received from the overseas are also not very encouraging. The debt crisis that has been brewing in Europe is threatening to bloom into a full fledge recession - double-dip recession as some people prefer to call it. Time alone will tell whether the Union will manage to come out of the crisis or whether there will be no Union left at all.

Leaders are fleeing the scene. After a change in leadership in Greece, Italy's PM Berlusconi has submitted his resignation.

RBI hikes interest rates - Will it fight corruption

The "most popular inflation" control mechanism of the Government of India has been deployed once again. The decision of the 12th successive rate hike was announced by RBI on Friday 16-Sept-2011.

In line with common expectation - RBI has announced an interest rate hike of 0.25% (25 basis points). After today's rate hike the repo rate has become 8.25% while the reverse repo rate has become 7.25%.

Lets hope this works, because the government has lost a lot of credibility in recent times on several fronts including - combating corruption, good governance and internal security. If inflation does not come down quickly, it faces the risk of losing public sympathy even on the financial front.

Financial stability of the common has been compromised drastically in the past few months. The government can give as many excuses as it wants, but the common man is seriously and directly effected by inflation and the failure of the government (even if for reasons beyond its control) could easily effect the vote appeal of the ruling coalition in the forthcoming elections.

RBI Monetary Policy - new norms for Banks

RBI has recommended that banks to keep the NPA coverage ratio at 70%, including floating provisions. The step was taken in view of the wide disparity on NPA provisioning ratios by different banks.

to advise banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions, and ensure that their total provisioning coverage ratio, including floating provisions, is not less than 70 per cent. Banks should achieve this norm not later than end-September 2010.

RBI

The SLR (statutory liquidity ratio) has been hiked by 1% to 25%. SLR is the portion of its deposits that banks are required to invest in government securities. The much expected rise in interest rates has, however, been kept out of the monetary policy announced on 27 Oct 2009.