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Published on 5/10/2018 4:59:43 PM | Source: Essel Mutual Fund

RBI Monetary Policy views by Killol Pandya - Essel Mutual Fund

Below is the View On RBI Monetary Policy by Mr. Killol Pandya – Head, Fixed Income, Essel Mutual Fund

Key Takeaways

In a move which surprised most of the market participants, RBI held rates at status quo (at 6.50% & 6.25% resp).  

All other reference rates (CRR, Bank rate, etc.) were also kept unchanged. RBI MPC changed its topline stance from ‘Neutral’ to ‘Calibrated tightening’. RBI noted the downward trajectory of CPI in the recent months. It noted the headwinds relating to global trade tensions, crude oil prices and an environment of tightening in global rates. RBI also noted that trade deficit was widening and was a cause of worry GDP estimate has been retained at 7.4% in FY18-19. GDP for FY19-20 is estimated at about 7.6%. CPI is expected to be about 4.4% in Q2FY18-19 (Vs 4.6% prev), 4.7%-4.8%% in H218-19 (Vs 4.8% prev) and 5.0% in Q1FY19-20 (same as earlier) with upward risks.  

Our views on the policy are as under;  

Views and Comments  

RBI MPC surprised the market by not hiking rates (which were widely expected) and also changed its stance from Neutral to Calibrated tightening. From the market perspective, this policy may be considered to be one, which may have short term positive impact. RBI MPC remains comfortable with our economic growth.  

RBI MPC observed liquidity to be broadly neutral in the past few months and continues to seek to maintain a systemically neutral liquidity.  

RBI MPC noted a near-term downward bias in CPI readings. RBI was also concerned global liquidity tightening and USD appreciation.  

RBI continues to be worried about, FOMC rate actions, INR depreciation, impact of firmer crude oil prices on CPI, trade wars & protectionism (in the global geo-political context). RBI seems confident that the government may be able to meet the central fiscal deficit target of 3.3%  

Overall, the from the market perspective, this policy may be considered to be one which may have short term positive impact (since most of the participants were expecting at least some hike) but the policy exhibits moderately hawkish undertones with a medium to long term perspective. We have been espousing a case for maintaining lower duration and believe this policy, while giving some short-term relief to bond markets, does not merit a change in the rates outlook for now. While we do not rule out trading opportunities, we are also not expecting an incremental change in our investment strategy or interest rate outlook on the basis of this policy. We reiterate our case for investors opting for Accrual based products for now & using trading opportunities to generate additional gains.  

 

Disclaimer:

The views of the Fund Manager should not be construed as an advice and investors must make their own investment decisions regarding suitability of the funds based on their specific investment objectives and financial positions and using such independent advisors as they believe necessary.  

Mutual Fund investments are subject to market risks, read all scheme related documents carefully    

 

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