>RBI, Trade credit.... (MERRILL LYNCH)

RBI, trade credit, SME, inflation, US

RBI: On hold; 50bp rate, 100bp CRR/SLR cuts ahead:
The RBI expectedly stressed a soft policy stance today to combat the global
recession. Policy rates were left unchanged in line with our (/ consensus)
expectations: we expect a final 50bp cut by April. The RBI did not, contrary to our
expectations, cut CRR 50bp to fund additional government borrowing, although it
appears to share our growing fiscal concerns. It has, however, extended sectorspecific
refinance facilities to September from June. In the event, we continue to
expect 100bp CRR/SLR cuts in FY10. Finally, the RBI expectedly cut FY09 real
growth to ~7% (from 7.5-8%, 7.1% MLe) and inflation to ~3% (from 7%, 2% MLe).

BoP risks overdone: US$28.1/43.2bn trade credit repaid:
The big news is really outside of policy action, or the lack of it. The RBI revealed
that US$28.1bn of the US$43.2bn of trade credit due FY09 has already been
disbursed by November. This buttresses our standing view of BoP risks overdone
here. This also supports our expected INR consolidation: read Steve and me
here. Incidentally, profit booking by FIIs (US$700mn in January) is expectedly
counter-balanced by a turn in trade seasonality in favor of exports over imports.
Note, merchandise trade turnover has been inching up suggesting a pick up in
trade. December exports reportedly fell 1% after ~10% October-November drops.

To see full report: RBI & Inflation