1. RBI's Mid­Quarter Monetary Policy Review
June 2013
At its mid­quarter review of monetary policy today, RBI left the benchmark policy
rates unchanged. Given below are the key points and our views ­
• Monetary Measures:
1. Repo rate maintained at 7.25%
2. Cash Reserve Ratio unchanged at 4.00%
3. Reverse Repo stands to 6.25%; Marginal Standing Facility (MSF) and bank
rate is pegged at 8.25%
• Has acknowledged the uneven global growth and increased risks of sudden
changes to capital flows due to the monetary policy stance of important
central banks such as the Federal Reserve.
• Not withstanding the weak growth trends in India, it has indicated that
uncertain inflation outlook has weighed on its policy stance. Key factors
impacting inflation outlook are – still elevated consumer inflation levels,
potential increase in imported inflationary pressures due to rupee
depreciation and upward revisions to domestic fuel as well as minimum
support prices (MSP).
• It has reiterated that government policy action is critical for boosting
investment growth and good rainfall should aid agricultural growth.
• Has highlighted the need to be vigilant against sudden reversal of capital
flows and need to maintain the recent positive trends in fiscal/current account
deficits.
The policy decision was in line with expectations, given the macroeconomic
backdrop both in India and overseas. RBI seems to be focused on
durable/sustainable fall in inflationary pressures and the Balance of Payments
situation. The government has been undertaking various measures to encourage
foreign investments and reduce non­productive gold imports. From a medium to
long term perspective, there is clearly a need to address the structural drivers of
domestic inflation (read bottlenecks) and boost investment activity.
In this environment, we continue to recommend our corporate bond strategies that
are focused on accrual/coupons. Investors with appropriate risk appetite/investment
horizon can take exposure to long bond/gilt funds to benefit from further monetary
easing over the medium term.