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Stimulus Package 2

Economy Update: Another Monetary & Fiscal Stimulus Package
• RBI has cut the Cash Reserve Ratio (CRR) by 50 bps from 5.5% to 5.0% with effect from fortnight beginning January 17, 2009.
• RBI also reduced the Repo and Reverse repo rate under LAF window by 100 bps each to 5.5% and 4.0%, respectively with immediate effect.
• The reduction in CRR is likely to inject additional liquidity Rs.200 bn to the financial system.
• The cut in policy rates as well CRR would further enable banks to reduce their lending rates (of course accompanied by reduction in deposit rates!!)
• The government in tandem with the Central Bank has also announced second stimulus package to invigorate the sagging economic activities.

Economy Update: Market Strategy

In January, markets will focus on potential government (fiscal
measures) and RBI actions (further interest rate cuts). A rise in geopolitical tensions in the South Asian region may keep markets nervous. Markets would focus attention on the US as the new President-elect takes office, the third quarter earnings and the management-speak thereof. FII flows will also be closely watched.

On balance,adequate measures and forceful implementation will likely moderate the economy's slide and give us the opportunity of a soft landing. Incremental FII outflows may also continue to moderate and help markets consolidate in the medium term. In the near term, quarterly results will lead to sector specific volatility.