Credit Suisse optimistic about RBI’s policy

Author: Neha Dhamija

The Switzerland based company has forecasted constructive outcome of events like decreasing commodity prices and RBI’s amendments in monetary policy together with slowing growth; on the fundamentals of Indian economy. It predicts that next year will show favourable changes in inflation, interest rates and trade deficit.

Though the report admits that the current position is not something to feel comfortable about, but the economic stand is going to show a speedy recovery by mid-2009. The present churn that is taking place will lead to a stable environment, stemming from adjustments in domestic economy coupled with the RBI’s efforts of shaping the monetary policy to make it more supportive in structure.
	The deposit rates are expected to drop by at least 300-400 basis points, owing to cuts like that of 2.5 percentage points in CRR (Cash Reserve Ratio) and strong chances of SLR and re-purchase rate (short-term) undergoing same treatment. The collective effect would be a reduction in the cost of capital that can be up to 3-4 percentage points. Inflation too is estimated to reach minimal magnitude of 3 percent, by the third quarter of 2009. This will further go into reducing the cost of capital. The report suggests that greater are the falls in the markets, higher are the possibilities of financial revival. However, the long-term investors should take care of risks related to currency, banks’ assets’ health and politics.