Fairval

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Final nails in the growth cycle

Posted by fairval on July 29, 2008

The RBI governer is going out with a bang. Hiking bank rate by as much as 50 basis points, and CRR by 25 basis points was not expected by most observers. Quite a few observers did not expect this kind of repo rate hike.

The monetary policy stance it appears remains hawkish. There could be further tightening before the year is thru. This means growth cycle could suffer significant slowdown. While the bull market got over around Feb-March, we could now be in a bear market clearly isnt getting over in 2008. Expect market to stay in 11000-14000 range for most of 2008

For investors, this is good news – you have another 8-9 months to stock up on equities. The bad news is for anyone wanting to take housing loans/car loans etc now. We are almost back to levels of mid-90s.

Between inflation and growth, the RBI had little choice. Inflationary expectations are so rampant currently, a lot of it is clearly coming from indiscrimate price increases by producers. India still has to learn how to sustain strong growth with controlled inflation.

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