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CRR Cut + P-Note Restriction Analysis

October 7, 2008

Reserve Bank of India (RBI) announced a cut in the cash reserve ratio requirement (CRR) for banks by 50 bp today to be effective from October 11, 2008. The cut is expected to infuse liquidity in the domestic money market which has seen a sharp squeeze as reflected in the overnight interest rates in the money market and high recourse to the RBI by the banks for liquidity recently. Going further, expect the RBI to relax CRR and statutory liquidity ratio (SLR) in order to manage liquidity if global conditions continue to deteriorate and expects the central bank to cut interest rate in 1Q2009.

P-Note Ban and Lifting the same Saga:
SEBI banned P-Notes few months ago and was speaking loud about the know-your-investor etc. However, it has lifted the same in view of the current market conditions to boost inflows into the market. I guess it is time for all the good men to come to the aid of poorly managed affairs in the Government.

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