Rbi Cutting rates / China buying gold – what are they preparing for?

8^th June 2025

Rbi Cutting rates / China buying gold – what are they preparing for?

Dear Investors,

Namaste! The Reserve Bank of India (RBI) surprised the market with a 50 basis points (bps) cut in the benchmark repo rate to 5.5% at its second bi-monthly Monetary Policy Committee (MPC) meeting on June 6. The central bank also trimmed its inflation forecast for the year by 30 basis points to 3.7%, and slashed the cash reserve ratio by 100 basis points to 3%.

The CRR cut alone is estimated to release ₹2.5 lakh crore into the financial system. This is way more than the market had estimated.

On the other hand China’s Central Bank added gold to reserves for the 7^th straight month ( May). Quiet accumulation. Loud message.

Both the central banks know something that we don’t know. Let us try to understand their game plan. 

Are they expecting Recession in the USA in the second half? 

With the TARIFF war going on – it is going to affect the export of our country like anything. Exports can be affected in two ways – because of the tariff our goods become costly for the US counterparts and they may reduce the imports from India. In that case – India will have surplus goods to sell. The exporters may need the line of credit at the cheaper rate to fight a long battle or hold on to their goods.

The other way is Dollar devaluation happening – RUPEE rates are going up against USD. We had seen 87 per dollar and it moved below 85 something for some time and now 85.80 

With the RUPEE going up – our imports become cheaper and export becomes costly. This means this is also going to affect our exporters in the coming time. Without any change in tariff also their income in INR will go down as USD is going down in value against the INR. 

RBI has expected the same and taken bold steps. With the rate cut we will have cheaper loans and with the CRR cut we will have tons of liquidity in the market. 

With both the above measures – we have created a buffer to manage the shock – if at all comes to the economy. 

What about CHINA? 

China is apparently not budging to TRUMP tantrums. It is giving a good fight in terms of reciprocal tariffs and controlling the rare earth minerals. 

However, with the dollar value going down – their holdings in the US bonds will lose the value at a faster pace. They are losing money. To save the loss they are selling US BONDS and buying GOLD. 

They have allowed their Insurance companies also to buy GOLD up to 5% of the assets under management. 

Total idea is to have something which can save them against DOLLAR devaluations.

What does it mean for Indian investors? 

We are creating two balloons with our policies in the market. With the cheap loans REAL ESTATE market is moving ahead as if there is no tomorrow. Prices of real estate are moving up and there is more and more unsold inventory. As per ANAROCK 8420 flats costing above 2.5 Crs are lying unsold just in MUMBAI MAIN LAND. This is the highest after the year 2022. What about unsold inventory pan India? 

With the cheaper rates now – the holding capacities of the investors will go up. They will not sell their flats at lower prices. With the WAR LIKE situations likely after September 2025 – any major effects on the GDP and EMPLOYMENT front will create havoc for banks as they will not be able to recover the money as there are no buyers for the FLATS. 

Another pain in the neck in the telecom industry. IDEA has been bleeding for a long time. It has slowly become a government company. Recently AIRTEL had requested the government  to buy shares in lieu of payment of  the telecom dues. The government rejected the same. 

With the MUSK coming – the competition is going to move up at a faster pace in the Indian telecom market. TELECOM has the highest loans from the banks. They will affect the bank’s balance-sheets like anything. 

By reducing the RATES – loans will move up at a lesser rate. In short, the RBI is buying the time for the industry.

Keep these two scenarios in mind while you are investing. 

How will small investors be forced to come to the stock market? 

With RBI policy – BANK FD interest rates and other small saving rates will come down. It means those who are surviving on interest income will have lesser income going forward. They will have to do something to generate more income from their limited funds. 

They will be forced to come to the share market directly or in-directly. 

The winner will be the person – who takes out the time and learns the fine art of investing. More they know – more they will be able to manoeuvre their funds effectively in the market. 

What NEXT?

A book can be written on the effects of the RATE CUT. It will affect the BOND investments – which is a much bigger market than the share market world over. I will write about the same next time. Today, I have just given you the bird eye view. 

Take help from an investment consultant to help you in achieving your personalised investment goals.

I wish you all the best. 

Follow me on Twitter @hiteshmparikh / WhatsApp - +91-9869425399.

Learn a Lesson. Live with Passion & Invest with Reason.

Hitesh Parikh.

Astro-Scientist.