| Topic : November Market Outlook |
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Activity:
Question posted: 11 11 2009 14:34:27 +0000,
1 answers, 176 views, last activity
07 06 2010 20:18:08 +0000
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The Reserve Bank of India has announced
the Second Quarter Review of the Annual Policy Statement for fiscal
year 2009-10 on the 27th Oct 2009. The RBI has initiated the
reversal process by rolling back the unconventional measures
that
had been introduced at the peak of the Crisis in 2008. A
few of the
measures announced towards this end are:
Limit for export credit refinance
which was raised to 50 percent of eligible outstanding export
credit, returned to the pre-crisis level of 15 per cent.
Statutory
liquidity ratio (SLR), which was reduced from 25
per cent of
demand and time liabilities to 24 per cent has now been restored to
25 per cent.
Two non-standard refinance facilities: (i) special refinance facility for scheduled commercial banks and (ii) special term repo facility for scheduled commercial banks discontinued .
CBLO liabilities of bank will now be subject to CRR norms..
What will be the effect of these measures on the economy? Will these measures to tighten the economy be effective?
With respect to imposition of a CRR on the CBLO, the move is quite puzzling. CBLO is an improved way of overnight lending and borrowing in the market place over the parallel repo transaction entered into between two counter parties. CBLO has a settlement agency as a counter party, online mode, better price discovery mechanism and effective margin mechanism. Most of these are absent in direct repo. A significant volume of the secured overnight lending happens in CBLO screen at present. Imposing a CRR, which involves an indirect cost attached to it, will prompt players to prefer a repo market over the CBLO for their borrowings. This does not augur well for the market.
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