RBI has hiked CRR by 75 bps, this move will implemented in two stages. In first step it will hike by 50 bpt and in next move it will hiked by 25 bps more. The step taken by RBI was unexpected by bankers because banks had expected it to hike by only 50 bps. This step has been taken to curb the inflationary pressure, because impact of inflation from food item is also touching to non food items and also fuel products too.
CRR hikes will also lead to rise in interest rate because banks have to keep 5.75% of their deposits with RBI in cash, so banks can't lend 5.75% of their deposit, so definitely less money to lend ,results in high interest rate. But still RBI has assured that this move will not give immediate rise to high interest rate. The other Rate repo, reverse repo all remain unchanged. To give boost to economy RBI has taken call on that , now future will answer how fruitful this step of RBI is?
Saturday, January 30, 2010
Friday, January 29, 2010
Biggest Crisis in world
Sub prime Crisis
Lehman Brother Crisis
Sub prime crisis, that shook the world on 27 Nov, 2007, this reason behind that crisis was skyrocketing property prices in US. The real estate market was booming in US. Banks were rushing to give the housing loan to borrowers without being much concerned about their past records. There are two kinds of borrower, Prime borrowers are those whose past record is good while subprime borrowers were those either they were not willing to pay back the loan or were not having stable income. Banks were charging high interest rate to the subprime borrowers.So many lenders got into that business and given mortgage loan to borrower they thought that even if borrower will not pay, banks will sell their property, and will manage to earn profit. But housing prices went down, banks had no buyer for that property and borrowers started to make the default and they declined to pay even low interest rate in this way so much debt accumulated.
This subprime Crisis led to lehman bankrupcy, Lehman Brother was US fourth largest investment bank, a 158 years old institution, was filed bankrupt on 15 sep, 2008 by US Fed Reserve, the reason being above sub prime Crisis and poor relations with US top banks. There were no buyer for Lehman brother. Bank of America ad Barclays had turned down the offer of buying it because in past Lehman failed to maintain good relation with these banks. So Fed Reserve left with no option except filing it Bankrupt. This is Biggest bankruptcy in the history of US. Because of these crisis entire global economy gripped by Recession.
Lehman Brother Crisis
Sub prime crisis, that shook the world on 27 Nov, 2007, this reason behind that crisis was skyrocketing property prices in US. The real estate market was booming in US. Banks were rushing to give the housing loan to borrowers without being much concerned about their past records. There are two kinds of borrower, Prime borrowers are those whose past record is good while subprime borrowers were those either they were not willing to pay back the loan or were not having stable income. Banks were charging high interest rate to the subprime borrowers.So many lenders got into that business and given mortgage loan to borrower they thought that even if borrower will not pay, banks will sell their property, and will manage to earn profit. But housing prices went down, banks had no buyer for that property and borrowers started to make the default and they declined to pay even low interest rate in this way so much debt accumulated.
This subprime Crisis led to lehman bankrupcy, Lehman Brother was US fourth largest investment bank, a 158 years old institution, was filed bankrupt on 15 sep, 2008 by US Fed Reserve, the reason being above sub prime Crisis and poor relations with US top banks. There were no buyer for Lehman brother. Bank of America ad Barclays had turned down the offer of buying it because in past Lehman failed to maintain good relation with these banks. So Fed Reserve left with no option except filing it Bankrupt. This is Biggest bankruptcy in the history of US. Because of these crisis entire global economy gripped by Recession.
Bubble always bursts
All you remember that during march ,2008 our india had given first time ever the 9% GDP, sensex touched 21000 pts, inflation was no matter of concern it was 4% which is consider ok, job market had enough opportunity but
suddenly picture got changed, stock market started to crash down because of global slowdown (lehman brother bankruptcy, subprime crisis) stock market ended up at 8000 pts, everybody was feeling jittery, inflation reached highest ever 12%, GDP fell down to 4-5%, no job remained more.Unlike USA, in india we had no recession ,it was mere a slowdown.It was a correction. Always Bubble follow the burst.
suddenly picture got changed, stock market started to crash down because of global slowdown (lehman brother bankruptcy, subprime crisis) stock market ended up at 8000 pts, everybody was feeling jittery, inflation reached highest ever 12%, GDP fell down to 4-5%, no job remained more.Unlike USA, in india we had no recession ,it was mere a slowdown.It was a correction. Always Bubble follow the burst.
Thursday, January 28, 2010
Why RBI hikes and cuts CRR
What CRR is
Cash Reserve Ratio: "It is certain fixed percentage of time and demand liablities of banks that RBI keeps with itself."
Currently it is 5%, when we were grappling with the recession it was hiked by 50 basis point and reached at 5.5% the reason behind was that if CRR is hiked that commercial banks will be having short of supply that can lend to general public bacause banks have to keep reserve more with RBI, generally during slowdown, flow of money tightens , so during recession RBI hikes the CRR but when the recession gets over the RBI again starts to take the reverse steps and cuts the CRR, and we have seen that RBI cut the CRR by 50 basis points and again it is 5%. the reason being that as recession impacts get slow , liquidity starts to flow, and again banks starts to lend the money.
(the monetory measures are taken by RBI, while fiscal measures are taken by government.)
Cash Reserve Ratio: "It is certain fixed percentage of time and demand liablities of banks that RBI keeps with itself."
Currently it is 5%, when we were grappling with the recession it was hiked by 50 basis point and reached at 5.5% the reason behind was that if CRR is hiked that commercial banks will be having short of supply that can lend to general public bacause banks have to keep reserve more with RBI, generally during slowdown, flow of money tightens , so during recession RBI hikes the CRR but when the recession gets over the RBI again starts to take the reverse steps and cuts the CRR, and we have seen that RBI cut the CRR by 50 basis points and again it is 5%. the reason being that as recession impacts get slow , liquidity starts to flow, and again banks starts to lend the money.
(the monetory measures are taken by RBI, while fiscal measures are taken by government.)
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