Rbi maintains staus quo!
The RBI’s Fourth Bi-Monthly Monetary Policy announced yesterday (04 Oct, 2017) maintained a status quo on repo and reverse repo rates. RBI lowered India’s growth forecast as well as dropped the Statutory Liquidity Ratio (SLR).
highlights – not reading it will not hurt you, go on skip it if you wish to!
- Policy measures – Repo and reverse repo rate unchanged at 6.00% & 5.75% respectively. SLR has been cut from 20% to 19.5% as part of a transition from SLR to LCR (Liquidity Coverage Ratio) regime.
- Growth – Real GVA (Gross Value Added) growth forecast for FY18 lowered from 7.3% to 6.7%.
- Inflation – Projected to be higher in H2FY18, in the range of 4.2%-4.6%.
- Policy Stance – Upside risks to inflation emanate from farm loan waivers, implementation of salary and allowances by states and their possible second round effects. Any fiscal slippage entailing stimulus may negatively impact inflation. Downside risks to growth would be on account of weakness in the manufacturing sector (post GST rollout), impact on corporate margins due to rising input costs and possibility of a lower-than-expected kharif production.
- Outlook – Revival in investment activity is key to improving demand for bank credit as existing capacities get utilized. For bank credit to flow to productive sectors, it is imperative to resolve the NPL issues and get banks recapitalized. These steps are more likely to have a broad-based impact on growth compared to interest rate cuts. Further, external conditions may also become challenging, with major global central banks moving towards quantitative tightening and balance sheet shrinkage.
- Strategy – Recent improvement in the credit environment (upgrade to downgrade ratio) augurs well for the Indian corporate bond market. Our corporate bond funds continue to offer higher yields, thereby providing higher accrual income opportunities. From an investment perspective, we continue to remain positive on corporate bonds and accrual strategies.
Nothing special, go an do your SIP. Relax.