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Our view on the RBI policy Repo rate cut by 35 bps to 5.40%. Stance remains “accommodative” ">
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Our view on the RBI policy

KEY HIGHLIGHTS OF THE MONETARY POLICY

  • Repo rate cut by 35 bps to 5.40%. Stance remains “accommodative”

  • Consequently, reverse repo rate at 5.15% and marginal standing facility (MSF) at 5.65%

  • Four members voted for a 35 bps cut in repo rate and two members (Dr. Dua and Dr. Ghate) voted for 25 bps cut

  • All six members voted for retaining stance at “accommodative”

OUTLOOK

RBI delivered higher than expected rate cut of 35 bps while most market participants were expecting a 25 bps cut. The MPC focused on the transmission of rate cuts which is evident by some relaxation in the risk weights and a raise in the bank’s exposure limit to a single NBFC to 20% of the Tier–I capital.

The MPC remained committed to providing banking system liquidity and were open to using all tools to monitor the same. However the market would have liked an outline on the liquidity management framework.

On rates, given the downside risks to growth and inflation remaining low, we see room for further rate cuts. With inflation expected to be around 3.50 - 3.70 for most part of the coming year we expect a terminal rate around 5.0% (a real rate of 135-150 bps).

Going forward, we believe the market will take further cues from the RBI Liquidity management framework and the clarity on sovereign bond issuance. We expect the yield curve to steepen. The 10 year G-Sec is expected to trade in the range of 6.20-6.40 for most part of this quarter.

Data Source: RBI


DISCLAIMERS

The material contained herein has been obtained from publicly available information, internally developed data and other sources believed to be reliable, but BNP Paribas Asset Management India Private Limited (BNPPAMIPL) makes no representation that it is accurate or complete. BNPPAMIPL has no obligation to tell the recipient when opinions or information given herein change. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. This information is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. Except for the historical information contained herein, statements in this publication, which contain words or phrases such as 'will', 'would', etc., and similar expressions or variations of such expressions may constitute 'forward-looking statements'. These forward looking statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those suggested by the forward-looking statements. BNPPAMIPL undertakes no obligation to update forward-looking statements to re¬flect events or circumstances after the date thereof. The words like believe/belief are independent perception of the Fund Manager and do not construe as opinion or advise. This information is not intended to be an offer to sell or a solicitation for the purchase or sale of any financial product or instrument. The information should not be construed as an investment advice and investors are requested to consult their investment advisor and arrive at an informed investment decision before making any investments. The sector(s) mentioned in this document do not constitute any recommendation of the same and BNP Paribas Mutual Fund may or may not have any future position in these sector(s). The Trustee, AMC, Mutual Fund, their directors, officers or their employees shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages arising out of the information contained in this document.

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