Expect A Big Bang Opening Today

Raghuram Rajan stepped in as the RBI Governor yesterday and announced a slew of measures to help stabilise the rupee and aid the liberalisation of the financial markets and the banking sector.

Under the plan,

1. Raghuram Rajan enhanced the re-booking limit on cancelled forward exchange contracts for exporters to 50% and for importers to 25%.
2. The overseas borrowing limit for banks would be raised to 100% of unimpaired Tier 1 capital from 50%.
3. He also introduced cash settlement in 10 year interest rate future contracts to develop the money market and market for government securities.
4. The RBI will offer a concessional swap window to banks for fresh dollar deposits received from non-resident Indians.
5. It will also offer forex swap at concessional rates to raise dollar funds through overseas borrowings thus subsidising hedging costs and making it easier for importers and exporters to hedge currency.
6. Additionally, he suggested banks should be allowed to gradually free up the funds they hold in government securities on a mandatory basis and thus free up capital and increase available liquidity for lending.
7. He also proposed issuing inflation-indexed bonds linked to the Consumer Price Index (CPI).
8. Raghuram Rajan also sped up the issuance of new banking licenses and said they would be issued around January 2014. An outside panel of experts headed by former Governor Bimal Jalan would screen applications.
9. The announcement of a committee headed by RBI Deputy Governor Urjit Patel being set up to strengthen monetary policy framework.
10. Another panel that was announced was that to suggest steps on the promotion of financial inclusion. This would be headed by Nachiket Mor.
11. Additionally, a committee headed by Deputy Governor K C Chakrabarty would monitor NPAs and suggest measures to improve the quality of debt.
12. He also rescheduled the date of the RBI monetary policy review to September 20, two days prior to the earlier schedule.

Clearly, Raghuram Rajan has made a big-bang entry and has given out a comprehensive objective for his tenure. The fact that there is heavy action being seen and a host of measures being announced will spread enough optimism in the markets.

The global markets saw some positive movement yesterday. The US and Europe were lifted by an upbeat sentiment in the US ahead of news from the Federal Reserve. But on account of the heightened fears of an attack on Syria, gains were capped.

However, today the markets are likely to focus on the measures taken by Raghuram Rajan and see hefty gains.