Financial Thoughts screamed at the top of the voice on 21 Oct 2011 against the indiscriminate monthly rate hikes by RBI. On a blog post on that date Financial Thoughts predicted as follows:
“Those who support further indiscriminate rate hikes must go back to US in 2006 when US Fed was blindly hiking the rates in pursuit of a mirage, which achieved nothing but a fantastic economic collapse in 2008”
Now many economists say that the glory days of India’s near 10% growth is over and may slip back to the Hindu growth rate. If that happens all credit must be given to the (foolish) policies of RBI.
RBI has almost killed the economic growth in India through reducing liquidity and ensuring that no-one can borrow at reasonable costs from banks and do business. As the expansions are put off and the customers decided not to buy as cost effective borrowings are not possible, the business in India got impacted. The recent IIP data tells more about this chilling story – all orchestrated by RBI
RBI is supposed to rescue banks in dire situations. But RBI is now ensuring that many banks in India will face a dire situation with increasing bad and doubtful debts by killing the growth. Many a business in India will struggle to repay as they are unable to generate business volume – again thanks to RBI who has ensured that the interest rates remain high. (Of course this will create more unemployment in an already overpopulated country, giving rise to social tensions!).
But RBI doesn’t care. It goes ahead with its anti-Indian policies with impunity.
Arbitrage Opportunity
After encouraging short sellers (through comments in Nov 2011 that conveyed message that RBI won't intervene.......) to take Indian rupee to record lows, which in turn caused a flight of FII and FDI funds, RBI has decided to attract more dollars by freeing the interest rates on NRE deposits. What a bold idea!!. You got an easy route to get dollars through FII and FDI but you follow own foolish ideas and policies and you get into a situation that resulted in taking such a drastic steps. (India must think of calling back Bimal Jalan or Reddy as RBI Governors)
Such policies provide something great for discerning investors. Well it has a great arbitrage opportunity. But this is limited to Non-Residents. (Don’t know why, usually residents get step motherly treatment in India). Borrow at LIBOR or EIBOR where the 1 year rates are less than 2%. If you borrow from banks, then they will add margins and say you can borrow at 3%. Take the funds to India and park it some of the banks who offer rates as high as 10% (e.g. Karur Vysya Bank) as repatriate-able NRE deposits. Then get into a hedge and cover the position (if you strongly believe India rupee will appreciate, then you can take the risk and leave the position uncovered). Assuming that the cost of the hedge is 1%, your arbitrage gain can be as high as 6%. If you are able to do this on one million dollar, your arb gain is $60k. If you gamble and leave the position open and if the Indian rupee appreciates, the gain could be much more.
(Disclaimer: All investments & arbitrage deals have their own risks. Author does not accept any responsibility or liability for the above mentioned arbitrage opportunity. Above arbitrage opportunity is mentioned for education and discussion purposes only. No investment or arbitrage advice is attempted in this blog, which is just a hobby. Anyone attempting investment or arbitrage must do his/her own study, due diligence, situation analysis and must take the advice of an authorised financial consultant.)
“Those who support further indiscriminate rate hikes must go back to US in 2006 when US Fed was blindly hiking the rates in pursuit of a mirage, which achieved nothing but a fantastic economic collapse in 2008”
Now many economists say that the glory days of India’s near 10% growth is over and may slip back to the Hindu growth rate. If that happens all credit must be given to the (foolish) policies of RBI.
RBI has almost killed the economic growth in India through reducing liquidity and ensuring that no-one can borrow at reasonable costs from banks and do business. As the expansions are put off and the customers decided not to buy as cost effective borrowings are not possible, the business in India got impacted. The recent IIP data tells more about this chilling story – all orchestrated by RBI
RBI is supposed to rescue banks in dire situations. But RBI is now ensuring that many banks in India will face a dire situation with increasing bad and doubtful debts by killing the growth. Many a business in India will struggle to repay as they are unable to generate business volume – again thanks to RBI who has ensured that the interest rates remain high. (Of course this will create more unemployment in an already overpopulated country, giving rise to social tensions!).
But RBI doesn’t care. It goes ahead with its anti-Indian policies with impunity.
Arbitrage Opportunity
After encouraging short sellers (through comments in Nov 2011 that conveyed message that RBI won't intervene.......) to take Indian rupee to record lows, which in turn caused a flight of FII and FDI funds, RBI has decided to attract more dollars by freeing the interest rates on NRE deposits. What a bold idea!!. You got an easy route to get dollars through FII and FDI but you follow own foolish ideas and policies and you get into a situation that resulted in taking such a drastic steps. (India must think of calling back Bimal Jalan or Reddy as RBI Governors)
Such policies provide something great for discerning investors. Well it has a great arbitrage opportunity. But this is limited to Non-Residents. (Don’t know why, usually residents get step motherly treatment in India). Borrow at LIBOR or EIBOR where the 1 year rates are less than 2%. If you borrow from banks, then they will add margins and say you can borrow at 3%. Take the funds to India and park it some of the banks who offer rates as high as 10% (e.g. Karur Vysya Bank) as repatriate-able NRE deposits. Then get into a hedge and cover the position (if you strongly believe India rupee will appreciate, then you can take the risk and leave the position uncovered). Assuming that the cost of the hedge is 1%, your arbitrage gain can be as high as 6%. If you are able to do this on one million dollar, your arb gain is $60k. If you gamble and leave the position open and if the Indian rupee appreciates, the gain could be much more.
(Disclaimer: All investments & arbitrage deals have their own risks. Author does not accept any responsibility or liability for the above mentioned arbitrage opportunity. Above arbitrage opportunity is mentioned for education and discussion purposes only. No investment or arbitrage advice is attempted in this blog, which is just a hobby. Anyone attempting investment or arbitrage must do his/her own study, due diligence, situation analysis and must take the advice of an authorised financial consultant.)
1 comment:
NHAI and PFC bonds are best in this case.no TDs nothing
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