The Bank of India Rattles Bombay stocks
The Reserve Bank of India (RBI) is heeding the call of the G-20, and is asking its banks to set aside the cash equivalent to 5.5% of deposits from 5% previously. The move is aimed at curbing the explosive Indian M3 money supply, which is expanding at an annualized 19.5% rate. India’s $775 billion economy grew at an annualized 9.2% rate in the third quarter, second only to China’s 10.4% growth rate.
Bank of India chief Yaga Venugopal Reddy is faced with pressure from Prime Minister Manmohan Singh to support an annual growth target of 10% next year, while near-record lending by banks and explosive money supply growth exerts upward pressure on inflation. Wholesale price inflation in India accelerated at 5.45% clip in November, just slightly below the central bank’s 6% reverse repo rate.
Still, it will be difficult for the central bank to rein in the M3 money supply growth rate, expanding at an annual 19.5% rate, unless it stops intervening in the currency markets. India’s foreign-currency reserves rose by $8 billion last month to a record $175.5 billion on December 1st, reflecting the central bank’s money printing and intervention operations in the currency markets.
Expectations of a squeeze in liquidity lifted yields on 10-year Indian government bonds to 7.66%, up 27 basis points since the RBI announcement to raise the bank cash reserve ratio, draining 135 billion rupees and leaving less to invest in bonds and stocks. On top of that, corporate tax payments are expected to drain another 300 billion rupees. The Indian overnight call money rate hit a high of 7.75%, above the RBI’s main lending rate of 7.25 percent.
One week ago, the Bombay Sensex index hit a record high of 14,035 on Dec 6th, but has since lost 7% of its value in a broad-based sell-off, triggered by the surprise RBI tightening move. Earlier today, the Sensex index fell as much as 555 points, or 4.1%, to as low as 12,844. The bearish mood in Indian blue chips and banks centered on shocking news that India’s industrial production plunged to an annualized 6.2% growth rate in October, nearly half the 11.4% rate in September.
By Gary Dorsch – Editor, Global Money Trends
IN SHORT ABT M1, M2, M3
M1 is all of the currency, plus all of the money held in checking accounts and other checkable accounts.
M2 is M1 plus all of the money held in money market funds, savings accounts and small CDs
M3 is M2 plus all of the large CDs.
The Reserve Bank of India (RBI) is heeding the call of the G-20, and is asking its banks to set aside the cash equivalent to 5.5% of deposits from 5% previously. The move is aimed at curbing the explosive Indian M3 money supply, which is expanding at an annualized 19.5% rate. India’s $775 billion economy grew at an annualized 9.2% rate in the third quarter, second only to China’s 10.4% growth rate.
Bank of India chief Yaga Venugopal Reddy is faced with pressure from Prime Minister Manmohan Singh to support an annual growth target of 10% next year, while near-record lending by banks and explosive money supply growth exerts upward pressure on inflation. Wholesale price inflation in India accelerated at 5.45% clip in November, just slightly below the central bank’s 6% reverse repo rate.
Still, it will be difficult for the central bank to rein in the M3 money supply growth rate, expanding at an annual 19.5% rate, unless it stops intervening in the currency markets. India’s foreign-currency reserves rose by $8 billion last month to a record $175.5 billion on December 1st, reflecting the central bank’s money printing and intervention operations in the currency markets.
Expectations of a squeeze in liquidity lifted yields on 10-year Indian government bonds to 7.66%, up 27 basis points since the RBI announcement to raise the bank cash reserve ratio, draining 135 billion rupees and leaving less to invest in bonds and stocks. On top of that, corporate tax payments are expected to drain another 300 billion rupees. The Indian overnight call money rate hit a high of 7.75%, above the RBI’s main lending rate of 7.25 percent.
One week ago, the Bombay Sensex index hit a record high of 14,035 on Dec 6th, but has since lost 7% of its value in a broad-based sell-off, triggered by the surprise RBI tightening move. Earlier today, the Sensex index fell as much as 555 points, or 4.1%, to as low as 12,844. The bearish mood in Indian blue chips and banks centered on shocking news that India’s industrial production plunged to an annualized 6.2% growth rate in October, nearly half the 11.4% rate in September.
By Gary Dorsch – Editor, Global Money Trends
IN SHORT ABT M1, M2, M3
M1 is all of the currency, plus all of the money held in checking accounts and other checkable accounts.
M2 is M1 plus all of the money held in money market funds, savings accounts and small CDs
M3 is M2 plus all of the large CDs.
STOCK OF THE DAY: - Suven Life Sciences, targets 109.50, 111 support at 104 book loss if it hit 103/102.
NIFTY SUPPORT & RESISTANCE :-
S1- 3622 , S2- 3565, S3- 3516. R1 – 3744, R2- 3777, R3- 3794.
Accumulate good stocks in small qty [ as per one’s capacity] at every new fall.
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