The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) in its bi-monthly monetary policy review again decided to keep the policy rate unchanged at 6.50%. The MPC of the central bank also retained its stance of remaining focussed on “withdrawal of accommodation.”
Here is how mutual fund managers explain the policy for investors.
Deepak Agrawal, CIO- Debt, Kotak Mahindra AMC
RBI MPC wants the elephant (inflation) to stay in the forest (lower) for a long period of time. Strong growth projections for FY 25, give flexibility to RBI to stay on hold till the time we actually witness global monetary easing. Highlighting that the last mile of inflation remains challenging, RBI MPC decided to keep rates unchanged and maintained a “withdrawal of accommodation” stance.GDP forecast for FY 25 was retained at 7% and inflation for FY 25 projection is also unchanged at 4.5% from the Feb 2024 policy. G sec yield has risen 1-2 bps post policy. We continue to expect a rate cut in the US and RBI is also likely to change MPC stance and cut rates in the second half of CY 2024. RBI will continue to manage liquidity such that repo rates are the operation rate.
Parijat Agrawal, Head – Fixed Income, Union Mutual Fund
As expected MPC kept the policy rate and stance unchanged. The softening of core inflation gives sufficient room to MPC, however volatile food inflation and recent uptick in crude and other commodity prices is to be watched and MPC kept the full year’s projection at 4.5%. The strong momentum in growth also gave comfort to MPC to align the CPI on a durable basis to 4%.We expect rate cuts in the 3rd quarter of FY 25, possibly after the US FOMC starts rate cut cycle. RBI is expected to keep liquidity neutral so that further transmission of higher rates can continue. There is a possibility of modification of the LCR framework going forward which may augur well for bonds.
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Murthy Nagarajan, Head – Fixed Income, Tata Asset Management
The monetary policy was on expected lines with repo rates maintained at 6.50%. GDP Growth was maintained at 7.00% for the current financial year. CPI inflation for the current year is expected to be at 4.50%. RBI again reiterated its stance of bringing CPI inflation to 4.00% levels on a durable basis and maintained that the last mile of bringing the CPI inflation to the 4% level is the toughest.The Rupee is expected to trade in the band of 83 to 85 against the dollar due to FII inflows in debt. RBI is expected to follow the US federal Reserve in cutting rates provided monsoons are normal and commodity prices remain range bound. The ten-year yield is expected to be trade in the band of 7.00% to 7.15% levels as rate cut expectation is pushed to the second half of this financial year.
Anurag Mittal, Head of Fixed Income, UTI AMC
The policy was on expected lines & bodes well from a macro stability perspective. Given expectations of a strong growth momentum & an uncertain outlook on food inflation, it was prudent of RBI to retain its data dependent approach & wait for actual disinflation before committing itself to an easing path.
Umeshkumar Mehta, CIO, SAMCO Mutual Fund
“RBI MPC maintains status quo on the repo rate at 6.5% in line with expectation. India’s Central Bank is in sync with the world central banks such as the US Fed, Bank of England, ECB and PBOC in keeping its interest rates unchanged.
There were no new surprises from the MPC as inflation continues to get closer to target levels and our economy continues to grow at 7% or higher for the 3rd successive year. India stands strong like a rock amongst other economies and our expectation is that interest rates will start pivoting sometime around the last quarter of this calendar year.”
Vikas Garg – Head of Fixed Income, Invesco Mutual Fund
On expected lines, status quo on policy rates at 6.5% and stance as “withdrawal of accommodation”. FY25 inflation maintained at 4.5% even though the projection for 3 out of 4 quarters lowered. 2QFY25 expected to see inflation dropping below 4%, almost after 5 yrs. Despite elevated crude prices & food inflation, several comments like “Goal in sight” & “Elephant has gone to Forest” gives a dovish tilt on inflation. Fundamental factors remain healthy as reflected in FY25 GDP at 7%, manageable CAD and record high Fx reserve.
Overall, it doesn’t disrupt the expectations of rate cuts in 2HCY2024, in line with global rate cut cycle. Market focus will be back to fiscal demand-supply dynamics which looks extremely favorable with Govt’s rapid fiscal consolidation over next 2 years, FPI inflows and particularly light G-Sec borrowing calendar in 1HFY25.
Nilesh Shah, MD, Kotak Mahindra AMC
The RBI Governor is playing like Brian Lara at Antigua Ground. After scoring 375 runs the highest score in a test match, he scored 400 runs to better that.
The RBI has achieved the objective of Stability, Trust and Growth. Growth is higher than market expectations. The market trusts the RBI to lower the Inflation to midpoint. Financial markets in stable conditions.
The markets expect the RBI to maintain the motto of Stability, Trust and Growth in the markets.
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Mahendra Kumar Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India)
The MPC maintained status quo on policy rates as well its withdrawal of accommodation stance. RBI may find itself in a pole position with growth momentum going strong, core inflation dropping and expectations of normal monsoon providing comfort on the headline inflation, particularly taming food inflation. However, possible spill overs from ongoing geopolitics developments, reversion in commodity prices from recent lows and lingering impact of global food price volatility creates caution amongst the members.
Space for rate cut likely has opened up though RBI seems in no hurry to cut rates presently but use its pole position to align inflation structurally to its long term target of 4%. As such, markets may find confidence in projecting rate cuts in later part of the year and interest rates may remain stable with a downward bias.
Akhil Mittal, Senior Fund Manager – Fixed Income, Tata Asset Management
Monetary policy was largely on expected lines, with no change in stance or policy rates. Governor mentioned continued focus to get inflation within the target zone on a sustainable basis, thereby indicating no near term likelihood of policy easing. Growth forecasts have been largely left unchanged and inflation (CPI) forecast has been brought down by approx. 10 bps.
With financial markets passing through tough economic cycles and geo-political uncertainty still prevailing, RBI has chosen a path of stability, and hence policy is expected to be directed on the same lines. We do not expect much impact in markets, though we do expect some bit of steepness in the yield curve (from the current virtually flat curve).
Deepak Ramaraju, Senior Fund Manager at Shriram AMC
As expected, the committee decided to keep the interest rates unchanged. However, it’s important to note that the timing of the rate cut is linked to the inflation rate reaching 4%. This creates some uncertainty about when the rate cut will happen.
Currently, we are in a deflationary zone, but there are upward pressures from food prices (due to the El Nino factor) and crude oil shocks that can add to the uncertainty. The market is concerned about a potential delay in the rate cut, which could cause it to remain range-bound in the near term.
Sandeep Yadav, Head – Fixed Income, DSP MF
The monetary policy was quite uneventful, as expected. RBI maintained the status quo in rates, as well as its tone. While the inflation and growth projections did change, the difference was not meaningful.
In such a scenario, we believe that the Indian bonds markets will be tracking global markets for a while. Thus the US treasury yields and oil should remain near term drivers.
For the longer term, we expect the favorable demand supply dynamics to bring yields lower.
Vikrant Mehta, Head – Fixed Income, ITI Mutual Fund
The MPC meeting’s decision on the policy rate and stance were on expected lines, which pushed bonds in a tight range post policy. With strong US data keeping global markets guessing on the timing of the US Fed rate cut, it appears that the RBI may want to see some further traction on the same before moderating its policy stance and then towards an eventual easing of the policy rate.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
