Aug 2, 2017

The RBI's Monetary Policy - cut the repo rate by 25 basis points to 6% - August 2017

The RBI's Monetary Policy Committee (MPC) cut the repo rate by 25 basis points to 6%, largely as per market expectations. This is the lowest repo rate since November 2010 and was facilitated by falling inflation. Please click here to download our monetary policy analysis and outlook. Below are a few key highlights for your reference -
  1. Growth - Projection of real GVA growth for 2017-18 retained at 7.3%.
  2. Inflation - CPI inflation eased to a record low of 1.54% (YoY) in July driven by a favorable base effect and deflation in food prices. It is projected to be in the range of 2.0%-3.5% for H1FY18.
  3. Liquidity - Systemic liquidity continued to be surplus driven by increased government spending.
  4. Yield curve- G-sec yields marginally eased (1-4 bps) in the short end from 1st August while firming up in the mid to long term maturities.
  5. Policy Stance - Upside risks to inflation could emanate from a spillover effect of farm loan waiver, implementation of a rise in HRA under the 7th Pay Commission recommendation, price revision under GST and unwinding of base effect. This justifies the MPC's neutral stance.
  6. Our Outlook - The neutral policy stance may signal a prolonged pause in rate action. Benign inflation and fiscal situation, stable currency and improving consumption demand signify a healthy macroeconomic situation which augurs well for the bond market.
  7. Investment strategy - Our corporate bond funds continue to offer higher yields, thereby providing higher accrual income opportunities for short-to-medium term. From an investment perspective, we continue to remain positive on corporate bonds and accrual strategies.
Hope you find our analysis informative and useful.

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