The RATE RACE begins: Yes Bank Increases Savings rate to 6%

After RBI deregulated interest rates on Saving Account Deposits yesterday (25TH Oct 2011) Yes Bank grabbed the opportunity to ignite a rate war by offering 6% interest in an effort to wean away accounts from established players with very high number of savings account, such as SBI, HDFC Bank.

HDFC Bank and SBI has very high CASA deposits of close to 50% of total deposits and has built vast troves of cheap cash in savings account. 

Savings Account Deregulation: Banks with high CASA Ratio to be impacted most

RBI in its monetary policy on 25th Oct 2011 deregulated the Savings Bank Account Interest rate with immediate effect. Till 24th Oct 2011 the interest rate on Saving Account was fixed at 4%.

The deregulation could have significant impact on banking industry and particularly the banks with high Current Account Saving Account (CASA) ratio , as the cost of funds are bound to go up because of rise in interest rates on Savings Account.

Food prices stubbornly high, RBI might pause on 16 Sep

The food price index rose to six month high level at 10.05% and the fuel price index climbed 12.55% in the year to Aug. 20. In the previous week, annual food and fuel inflation stood at 9.80% and 13.13% respectively.

The primary reason for such high food inflation numbers could be uneven rainfall in some parts of the country which created temporary shortfall in supply of food items. In west Bengal some of the vegetables were being sold at 400% higher prices than their average selling prices.

RBI Monetary Policy Highlights - 16th June 2011

# RBI raises Repo and Reverse Repo rates by 25 bps each.

# RBI says inflation persists at uncomfortable levels and will continue with its anti-inflationary monetary policy.

# RBI says Inflation spreading to non-food items a cause of concern.

Food Inflation over 9%, all eyes on RBI

Food inflation has come in at 9.01% for the week ended May 28 which is at 2 months high. The RBI, in its monetary policy for 2011-12, had projected that overall inflation would average 9% during the first half of this fiscal. However such high inflation numbers for food prices might compell RBI to further hike the key policy rates at least by 25 bps when they meet on 16th june for policy review.

High interest rates have already started impacting the growth of the economy and any further hike in interest rates will decelerate the economy further.

25 bps is already priced in the markets currently but any negative surprise will spook the market badly. However if the key policy rates are left unchanged on 16th June, the market should positively react.

Interest rate effect - Infrastructure growth falls to 5.2%

High interst rate has started showing its colors on the infrastructure and overall growth of the economy. As per the data released on 1st June the growth of the six core infrastructure industries in April had fallen to 5.2%. In March 2011 the infrastructure growth was 7.4%.

Yesterday the GDP growth numbers were reported as 7.8% way below the street estimates.

RBI has increased interest rates by 300 basis points in last 1 year and the market is expecting another round of 25 bps rate hike on 16th June by RBI.

RBI Hikes Savings Rate to 4% from 3.5%

 Reserve Bank today raised its short term lending (repo) rate by 50 basis points to 7.25%, while lowering the economic growth projection to 8% for the current fiscal.

The reverse repo, the rate at which bank park funds with RBI, has been raised by 50 basis points to 6.25%. CRR remains unchanged at 6%.

The RBI has also increased the saving bank rate by 50 basis points to 4% to give higher returns to depositors in the wake of high inflation.

Savings rate is increased for the first time since 2003, which is negative for banks having high CASA ratio such as SBI, PNB ICICI Bank, HDFC Bank.

The tighter monetary policy have played spoil sport on Indian markets and the stock markets are heavily down today mainly draggged by the bank stocks

Related article http://investorzclub.blogspot.com/2011/05/should-one-invest-in-banking-stocks-now.html

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