3December2008

RBI to ease Rates, Interest
In order to infuse liquidity in the system Govt. has set up a committee to discuss on reducing Repo Rates, Reverse Repo and Interest Rates. (Its important to note that RBI controls money supply in the system with these rates. Like, in order to increase the liquidity in the system RBI can cut Rates (Repo, Reverse Repo) and/or Interest Rates. In layman's terms, if interest rates come down more people will take loans at cheaper available rates. Hence, there is more money in the market. This means, higher purchasing ability and in turn might lead to higher inflation. With inflation easing for a month now, Govt. might not care about it and like to safeguard Financial system)
Repo rate is rate at which RBI lends money to Bank. Reverse Repo, on the other hand is the rate at which RBI takes deposits from Bank. Currently, Repo rate is at 7.5% and Reverse Repo is at 6%. Committee targets cut Repo rate by 1.5% and Reverse Repo by 2%.
Cash Reserve Ratio (CRR) is proportion of cash banks have to keep with central banks. Cut in CRR means Banks can lend more. In a way, Banks can cut rates to provide loans at cheaper rate. This would also mean that Banks will cut deposit rates as well to safeguard the Bank's margin. Most of the Banks have already cut the deposit rates by 50 basis points (1 basis point = 0.01%)

Closed End Mutual Fund to be listed on Exchanges
Closed End Mutual Fund may have to be listed on the Exchange. This is to safeguard fund houses from the institutional investors, FIIs who take out investments abruptly and premature. Now when these are listed, fund houses don't bear the impact. This is in view of current situation when RBI had to open for banks to let Mutual Funds access to banks funds. Now investor who wish to premature exit have to find the buyer at exchange.

NSE vs MCX
For the first time there is an open fight of country's leading exchanges. NSE has put FT (Financial Technologies) on watchlist. NSE's decision has blocked sale of softwares of FT to brokers, vendors. FT is promoter of MCX. MCX is leading commodity Exchange of the country, with Mr. Jignesh Shah as the Chairman. Recently these two bourses came face to face for currency future trading in which people believe 'trader driven' MCX is performing better than NSE.