MPC | Business Upturn

RBI’s steady rates open opportunities for long-duration bond funds

Finance Desk — Sat, 10 Feb 2024 15:03:53 +0000

In its sixth consecutive meeting, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) maintained interest rates, continuing its ‘withdrawal of accommodation’ stance. This decision prompts experts to suggest that now is an opportune moment for investors to consider long-duration bond funds. With bond yields slightly increasing post the MPC meeting, the prevailing expectation of future rate cuts makes it an advantageous time to secure high rates in long-duration fixed-income products. The RBI’s focus on inflation targets and policy transmission justifies its stance, highlighting the incomplete transmission of previous monetary policy actions in the credit market.

Despite a 250 basis points rate hike since May 2022, the complete transmission to lending and deposit rates is yet to be realized. Crisil notes a recent rise in deposit rates and vehicle loan rates, while money market rates have outpaced the repo rate due to tighter systemic liquidity. As the RBI concentrates on liquidity management and macroeconomic stability until March 2024, experts recommend investors explore short-term rates for lucrative opportunities. Puneet Pal, Head of Fixed Income at PGIM India Mutual Fund, anticipates a gradual decline in the benchmark 10-year Bond yield towards 6.50% by Q3 CY2024.

Sovereign bond yields have seen a decline since the December 2023 MPC meeting, offering potential value in the 10-year segment of the yield curve. Experts suggest increasing duration in fixed-income portfolios through sovereign bonds maturing in the 10-year segment, considering historically tight spreads on the long end. Dynamic bond funds are recommended for investors with a 2-3 year horizon, aiming to benefit from falling bond yields. Pankaj Pathak, Fund Manager at Quantum AMC, suggests conservative investors stick with liquid funds for shorter holding periods. Adhil Shetty, CEO of Bankbazaar, advises utilizing interest rate risks for potentially higher returns, acknowledging long-term funds’ higher risk and return possibility compared to steady short-term returns of liquid funds.

Overall, the RBI’s steady rates create an environment for investors to strategically consider long-duration bond funds, taking advantage of prevailing market dynamics.

Headline inflation on food prices to increase in near months: RBI

Dixita Hazarika — Thu, 24 Aug 2023 13:06:48 +0000

It has been reported that in the monetary policy meeting that was held on August 8 to 10, the members of the Monetary Policy Committee (MPC), in majority, have expressed caution on the rise in retail inflation in the near-term.

Shaktikanta Das, the RBI Governor, cautioned that headline inflation is anticipated to set significantly in July-August, driven by the increase in prices of tomato and other vegetables.

It has also been said that in view of the supply disruptions caused by bad weather, it is likely that headline inflation will rise in the coming months. Along with this, an El Nino event amid volatile global food prices is going to create uncertainty in the food prices.

Ashima Goyal, a member of the six member MPC panel said that important factors which need to be taken into account when it comes to deciding future rate course include progress in the rest of the monsoon and possible supply side measures.

On August 10, the Monetary Policy Committee (MPC) kept the repo rate unchanged, as inflation continued to pose a threat to Asia’s third-largest economy. The MPC kept the repo rate at 6.5 percent.

In August monetary policy revision was made by the central bank to its inflation forecast for 2023-24, increasing it by 30 bps to 5.4 percent.

Assuming a normal monsoon, the latest CPI inflation projections for 2023-24 was revised to 5.4 per cent, with Q2 at 6.2 per cent, Q3 at 5.7 per cent and Q4 at 5.2 per cent. CPI inflation for Q1:2024-25 is projected at 5.2 per cent.

On August 10, during the monetary policy address, the RBI Governor said that given the likely short-term nature of those shocks, monetary policy could look through high inflation prints caused by such shocks for some time.

Can RBI achieve its FY24 GDP target? Here’s what economists say

News Desk — Sat, 10 Jun 2023 19:40:52 +0000

The rate-setting committee of the Reserve Bank of India (RBI), known as the Monetary Policy Committee (MPC), hasn’t surprised anyone by keeping its finger on the pause, keeping the policy repo rate at 6.5 percent, and sticking to its stance of withdrawal of accommodation. This indicates that the RBI believes there is still too much liquidity in the system, and that the central bank needs to keep it tight to check inflation.

In spite of this, several financial experts anticipated that the MPC would vote differently on the attitude, even if it didn’t change to neutral, since the inflation rate has been falling. “While the monetary policy committee might vote unanimously to keep rates unchanged, the decision to extend the stance could see a split as the doves would prefer to close the door on further tightening as inflation beats a retreat,” Radhika Rao, an economist at DBS Bank, said in a note dated June 5 that “while the committee might vote unanimously to keep rates unchanged, the decision to extend the stance could see a split.”
A neutral position will suggest that the RBI can increase, stop, or cut at a future stage, as prompted by the data and transmission delays, an economist from Deutsche Bank AG named Kaushik Das told Bloomberg. “A neutral stance will signal that the RBI can hike, pause, or cut at a future stage.”

Why not just be impartial?
Following a series of incremental increases in the repo rate over the course of almost an entire year, the MPC decided to put a hold on further rate increases at their meeting in April. Jayanth Varma, who is one of the most vociferous rate-setters in the group, raised doubts on this matter, despite the fact that five of the organization’s members had chosen to continue concentrating on the withdrawal of housing. Nothing has changed in that regard. The same five members voted once again to stay focused on removal of accommodation in order to ensure that inflation gradually matches the objective while supporting growth. Varma once again raised misgivings on this aspect of the resolution.

A change in posture would have heightened expectations of a pivot in the near future, but it does not seem probable that there will be a rate decrease anytime soon given the unpredictable influence that weather may have on food prices. According to Rao of DBS Bank, the action taken by central banks across the world demonstrates vigilance on inflation as well as financial stability threats. This is in response to the Australian meteorological bureau’s decision to increase the likelihood of an El Nino event occurring.

RBI Monetary Policy: Repo Rate to remain unchanged at 6.5%

News Desk — Thu, 06 Apr 2023 09:22:55 +0000

The results of the RBI’s Monetary Policy Meeting for 2023: The Monetary Policy Committee (MPC), comprising of 6 members headed by RBI Governor Shaktikanta Das announced that the repo rate will remain unchanged at 6.5%.

The increased retail inflation and the rate actions taken by central banks of developed economies, especially the U.S. Federal Reserve, the European Central Bank, and the Bank of England, are two key factors on which the committee is expected to deliberate intensely while firming up the monetary policy. Das added that the MPC is prepared to take action if necessary, notwithstanding the rate-setting committee’s continued emphasis on the removal of lodging. Recent bank failures and contagion fears, adds Das, have prompted a focus on financial stability. According to Das, India’s economy will expand by 7% in real terms in FY23. Despite efforts by the central bank, inflation continues to rise. The Indian banking and NBFC industries are doing well.

While we have decided to leave the policy rate constant, we did so after carefully considering the macroeconomic and financial data available as of today. The Governor has stated that they will not rest until they see inflation fall steadily and return to their goal range.

The Reserve Bank of India (RBI) believes the Indian currency moved in a systemic order in 2022 and is expected to be stable in 2023, therefore Das said, “We remain alert and focused on maintaining the stability of the Indian rupee.”

The third-quarter current account deficit shrank considerably from the previous quarter. Around $600 Billion in Inward Gross Remittances have been received recently. Onshore market banks with IBUs are now permitted to issue non-deliverable forward contracts (NDFDCs). Das revealed that UPI can be used for pre-sanctioned bank credit lines as part of the RBI’s efforts to increase UPI’s reach.

Weekly Roundup: A glance at how BSE & Nifty 50 performed

Vandana Nampoothiri — Sat, 07 Aug 2021 05:31:45 +0000

Domestic equity market benchmark BSE and Nifty 50 hits a record high on Tuesday. Nifty 50 touched an all-time high of 16,000 points while BSE Sensex hit a new record of 53,83 on August 3.

On Thursday, BSE reached 54,717 while Nifty 50 claimed 16,349. During the closing hours, the indices were at 54,492 and 16,294 respectively.

According to MoneyControl, BSE Largecap Index also hit a new high of 6308.32 and surged nearly 3 per cent in the week ended August 6 led by the Piramal Enterprises, Eicher Motors, Bharti Airtel, Housing Development Finance Corporation.

On August 4, the BSE Smallcap index touched a fresh record high of 27323.18. The top gainers were Hindustan Oil Exploration Company, Tejas Networks, and Steel Strips Wheels.

Tata Consultancy Services (TCS) and HDFC Bank added most market value. Firms like Bajaj Finserv and UltraTech Cement lost the most in terms of market value last week, reported MoneyControl.

On August 6, Indian Rupee rose 26 paise against the US dollar, to close at 74.15.

The Reserve Bank of India announced the monetary policy. The repo rates and reverse repo rates remain unchanged. The Consumer Price Index (CPI) inflation estimate was raised to 5.7% for FY22. Rate sensitivity stocks continued to trade solid.

Foreign institutional investors (FII) bought equities worth Rs 2,616.04 crore, while domestic institutional investors (DIIs) bought equities worth Rs 896.84 crore, MoneyControl reported.

Rate sensitive stocks continue to trade solid as lending rates remain unchanged

Vandana Nampoothiri — Fri, 06 Aug 2021 06:11:51 +0000

Rate-sensitive stocks continue to trade solid on Friday after Reserve Bank of India’s Monetary Policy Committee(MPC) left repo rate and reverse repo rate unchanged, MoneyControl reported.

The repo rate stands at 4% while the reverse repo rate remains unchanged at 3.5%. According to MoneyControl, the auto index led by Amara Raja Batteries, Tata Motors, Maruti Suzuki, and Eicher Motors increased by 0.6% following the MPC announcement.

The bank index led by IndusInd Bank, IDFC First Bank, PNB, and AU Small Finance Bank was increased by 1-3 per cent.

Speaking about the unchanged lending and borrowing rates, MPC said that it will continue with the accommodative stance as long as necessary to support a struggling economy hit by the COVID-19 pandemic.

The Consumer Price Index (CPI) inflation estimate was raised by 5.7% for the first quarter of FY22.

“The monetary policy announcements came exactly on expected lines— continuation of the accommodative monetary stance, status quo in policy rates, maintaining the FY GDP at 9.5 per cent and upward revision in FY 22 CPI inflation rates. The upward revision in CPI inflation rate to 5.7 per cent from 5.1 per cent earlier reflects the higher inflation prints in recent months,” VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, told MoneyControl.

The growth supportive monetary policy was announced keeping in mind the possibility of a third wave of COVID-19. “The need of the hour is not to drop out the guard and remain vigilant against any possibility of third-wave especially in the backdrop of rising infections in certain parts of the country,” RBI Governor Shaktikanta Das said while announcing the monetary policy.

RBI raises CPI-based inflation estimate for FY22 at 5.7%

Vandana Nampoothiri — Fri, 06 Aug 2021 05:30:54 +0000

Reserve Bank of India (RBI) raised the Consumer Price Index (CPI) inflation to 5.7% from 5.1% for FY22, RBI Governor Shantikanta Das said on Friday during the Monetary Policy announcement.

CPI inflation for the first quarter of 2022-23 is estimated at 5.1%, Das said.

“CPI inflation surprised on the upside in May; price momentum however moderated. Outlook for aggregate demand is improving but underlying conditions are still weak. More needs to be done to restore supply-demand balance in no. of sectors” Das said.

Monetary Policy Committee kept the interest rate unchanged. The repo rates have been fixed at 4%.

Indian economy to contract 9.5% in FY21, states RBI governor

Chittesh Dalmia — Fri, 09 Oct 2020 08:48:42 +0000

The Indian economy will contract 9.5% in fiscal 2021 due to disruptions caused by the COVID-19 pandemic, according to Shaktikanta Das, Governor, Reserve Bank of India.

Mr. Das added, growth “may break out of contraction and turn positive during January-March” hinting at improving signs of recovery.

The MPC continued to maintain an accommodative stance to revive growth on a durable basis and mitigate the impact of COVID-19 disruptions.

According to the World Bank, India’s GDP growth is likely to contract 9.6% in FY21, it revised its forecast of 3.2%. Fitch has estimated a contraction of 10.5%.

India’s inflation based on consumer price index (CPI) was 6.69% in August from 6.73% in July. The MPC aims to keep the retail inflation close to 4%.

Mr. Shaktikanta Das stated in the three day Monetary Policy Commitee meeting that ended today. The RBI has kept the repo rate unchanged at 4% p.a. and reverse repo at 3.5% p.a.