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Below are views on the Monetary Policy announced by the RBI earlier today by Ms. Bekxy Kuriakose, Head – Fixed Income, Principal Asset Management

Today’s Policy did not have any major big bang fireworks or announcements. As expected the RBI MPC voted unanimously to keep key rates unchanged and stance accommodative to revive growth. Market was expecting that RBI may increase the quantum of GSap (Government Securities Acquisition Programme) for the next quarter i.e. July to September 2021 which they did ( From Rs 1 lakh cr to Rs 1.20 lakh cr). Of the remaining Rs 40,000 cr worth of purchases to be done under GSAp 1.0 for June 2021, 10000 cr is earmarked for SDL purchases.

Gilt yields are stable post policy announcement with the current ten yr benchmark gilt trading around 6%. Given RBI’s active and dynamic management of primary auctions, OMOs (Open Market Operations) any rise in gilt yields on inflationary and fiscal concerns maybe tempered by RBI actions. In the near term we expect money market yields to remain stable as well considering there is no announcement on higher tenor variable reverse repo auctions but the same cant be ruled out in future. SDL spreads should also remain supported with ten yr SDL spreads in range of 75-80 bps.

We would advice investors to follow a balanced asset allocation approach for investing in debt funds and look at high quality short term debt category for core allocations.

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