RBI & Government in a tussle

Resignation by the RBI governor Mr.Urjit Patel after being in office for a little more than 2 years was a big surprise that has come after market hours on 10thDecember. 11th being a big event day with 5 state assembly election results where we are having shaky grounds and the markets having already lost ground, in line with the global markets.

Now, this new development will take a big blow in the markets. Though all the dark cloud will clear in a day or two, didn’t expect this to happen. In the recent weeks there has been a continuous tussle between the finance ministry and the RBI on PCA, Liquidity and Reserves issues.

Slowdown in the economy which is forcing the government to resort to all possible ways to bring in growth. 11 out of 23 PSB’s not allowed to lend due to PCA. Liquidity not available in the markets due to curbing of NPA’s and reducing reserves of the RBI to fund governments deficit.

All of these are not good expectations. When we are fighting corruption and wanting to clean the economy, resorting to again funding without quality assessment will only result to further loss of capital. If the governor had resigned to ensure all of these claims do not happen, it is a good decision. At the same time a big blow to the government when elections are just a few months away.

We spoke about the market reaching the previous bottom in our recent video, didn’t expect it will go there in such a hurry. Probably these events and their outcomes might keep the markets down for some more time to come. Pain for portfolios likely to continue.

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Ramesh Sigamani

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