Weak global cues and a few disappointments in the earnings results (L&T, Bharti Airtel and ONGC) this quarter, snapped the 4 week winning streak that the markets were enjoying. China played spoilsport with its control measures to curb bank lending and policy tightening motivated by its concerns of speculative bubbles such as in real estate. Obama didn’t want to be left behind as he proposed new rules to limit banks’ risk taking. The new proposal aims to control the speculation by commercial banks and stop them from growing bigger and jeopardizing the financial system – this could force the breakup of the some of the biggest banks of the country.
Soaring food prices continued to be a concern despite some softening in recent weeks. The RBI acting under pressure to apply brakes on the inflationary tendencies, raised the CRR ratio by 75 points rather than the 50 that everyone was expecting. It has its limitations in tackling price rise; limitations posed by fiscal dominance, poor absorptive capacity of the economy that makes it difficult to utilize capital inflows all adding to the RBI’s woes in managing money supply.