As I said in my yesterday’s email there will not be much movement in Indian Markets – Nifty or the Bombay Stock Exchange.
Both are just 0.25% up than yesterday’s close. This is not a significant move.
Today the RBI (Reserve Bank of India) will announce its monetary policy at 2.30 pm India time. This is unlike earlier times when they announced at 11.00 am India time.
Another difference is earlier the rate hike call was taken by only the RBI Governor. But from now onward it will be taken by the Monetary Policy Committee (MPC) headed by RBI Governor. Right now RBI Governor is Mr. Urjit Patel. Whatever the Committee decides Mr. Urjit Patel will announce exactly that.
Monetary Policy Committee (MPC) is a six-member panel which has equal representation from RBI and the government.
If you remember since the start of last year RBI has cut the repo rate five times.
Repo rate is the rate at which Reserve Bank of India lends money to recognized banks in India.
How Inflation Is Decided And How The Repo Rate Is Decided
Repo rate depends a lot on Retail Inflation. Retail Inflation is the average of all Inflation among all the products sold in India to people like us – not the Inflation for the brokers or whole-sellers. It is the price increase when the product is ultimately delivered to customer from a shop from year to year.
Assuming that rice producers paid last year Rs.100/- for 1 kilo of Basmati Rice to the farmers and sold it for Rs.101/- to brokers or whole sellers who then sold the same to shopkeepers for Rs.110/- per kilo who then sold to customers for Rs.120/- per kilo.
And in this year assume that rice producers paid Rs.100/- for 1 kilo of Basmati Rice to the farmers and sold it for Rs.102/- to brokers or whole sellers who then sold the same to shopkeepers for Rs.115/- per kilo who then sold to customers for Rs.125/- per kilo.
Then the inflation will increase by (5/120)*100 = 4.16%.
As you can see there was ZERO inflation for rice producers but a 4.16% increase for retail buyers, so the government will consider an inflation of 4.16% in Basmati Rice.
Like that average inflation of nearly all products sold to retail customers is taken into account before announcing the real Retail Inflation. Based on this the RBI decides the lending rate or the Repo Rate.
India’s retail inflation has touched a five-month low of 5.05 percent in August 2016. This may let the Monetary Policy Committee (MPC) lower the Repo Rate by 25 basis points or let it remain unchanged. In any case markets will not move much.
Hope how Inflation is decided and how the Repo Rate is decided is now clear to you.
If you have any questions please ask in the comments section below.
Now advise for people who have done my Option Trading Course.
INDIA VIX is at 15.49% or just 0.83% below yesterday’s close. Which clearly indicates markets are not expecting much from the RBI announcement at 2.30 pm today.
But please do keep an eye on the trades that are on.
My focus is on Strategy 1 which makes money almost every time its traded. If you see a reasonable profit at 2.00 pm exit the trade and book profits.
You can then later enter as written in the document.
You Can Read More On My Site
Hi, I am Dilip Shaw, owner of this website. I am a trader like you. I have been trading since 2007, but lost a lot of money till 2010. I then stopped trading and studied options like college exams. Started trading again from 2011 and never looked back since. I did a lot of research, read books and did countless paper-trading before being profitable. You can read about me here.
My conservative trading course since 2014 is helping many retail traders just like you who have a job or business make consistent profits like this:
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You can do this course from your home. Some traders make amazing profits like Rs. 16.26 lakhs profit in 5 days though results may differ for all.
This course helps you learn to trade conservative option strategies for monthly income. Once you finish the course you can start trading immediately. You can start trading from any day. No need to wait for expiry. You will make profits consistently.
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Before reading please understand that for all 5 strategies, strike selection will be taught. Strike selection while trading Options is the most essential part to succeed.
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P.S: So many years of trading has thought me one thing - it is always better to make small profits month after month, rather than lose money month after month trying to make too much money. It never happens. But small money accumulated month after month can become very big in only a few years.
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