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Below the Quote on RBI Monetary Policy by Prashant Pimple, CIO Fixed Income, Baroda BNP Paribas Mutual Fund

RBI policy, as widely expected, delivered yet another status quo in terms of benchmark rates as well as the stance but with a surprise of 2 MPC members voting for change in stance from “withdrawal of accommodation” to “neutral” as well as rate cuts of 25 bps. This bodes well for the softer interest rates moving forward. On the system liquidity front, RBI has reiterated that the Weighted Average Call Rate has remained close to the middle of the corridor i.e 6.57%. RBI remains committed to being nimble and maintain REPO rate i.e 6.50% currently as the operative overnight rate which may help ease the short end curve even further. We expect the overnight rate to be closer to the Repo rate than between repo and MSF as was in the last 2 months.

The growth- inflation balance is moving favourably with growth projected at 7.20% for FY25 and inflation for the same period at 4.50%. We believe that higher GDP growth factors in tailwinds come from lower interest rates. The market will now look forward to the budget and how does the government pave the way for fiscal consolidation. We expect the macro fundamentals to remain strong with the government maintaining 5.10% of the fiscal deficit to GDP.

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