Edunology - Saumya Aggarwal

RBI kept key rates unchanged: Effect Analysis

Reserve Bank of India kept key Repo and Reverse Repo unchanged today in its announcement. However, it decided to cut Cash Reserve Ratio by 25 basis points to 4.5% in its mid quarter review of the monetary policy on Monday. CRR is the minimum proportion of deposits that banks must hold with the central bank. The CRR reduction is expected to inject Rs 17,000 crore liquidity into the banking system.

Effects Analysis:

1. G-Sec Yield

Immediate - Indian Government Bond 8.15% 06/11/22 which is current 10 Yr Treasury note yields shot up after the annoucement.

Medium term: Yields can soften a bit on shorter end of the curve going forward.

2. The country's largest bank, State Bank of India has slashed interest rate on select retail loans including home and auto loans. Private sector banks like ICICI Bank, HDFC Bank and Axis Bank have reduced their deposit rates by upto 50 basis point.

3. The 25bps CRR cut would boost bank profitability by Rs2,000 crore, much higher than Rs75 cr cost reduction that a 25bps repo rate cut would have effected

Note: Screenshot is GIY screen of Bloomberg and data shown in it is property of Bloomberg L.P.