After its three consecutive rate cuts, RBI today left key policy rates - repo, reverse repo and Cash Reserve Ratio (CRR) unchanged in its mid-quarter monetary policy review. Experts say that the central bank refrained from cutting its key rates due to steep depreciation in rupee.
Currently, the repo rate stands at 7.25 percent while reverse repo is at 6.25 percent. Repo rate is the rate at which RBI lends to banks while reverse repo is the rate RBI pays to banks to store their excess funds. The cash reserve ratio (CRR), which banks have to maintain with RBI remains unchanged at 4%.
RBI has expressed its concerns over global economy and domestic economic conditions like growth, inflation and liquidity. In the policy document, the central bank has said “During the current financial year, the growth of industrial production decelerated to 2.3 per cent in April after picking up in the preceding month. All constituent categories of industry have slowed, with a persistent contraction in mining activity. The sharp weakening in the growth of capital goods production points to still damp investment demand whereas a pick-up in consumer non-durables could be indicative of a fragile return of consumer confidence. On the other hand, the services sector purchasing managers’ index rose in May on order flows. The onset of the south-west monsoon has been strong and on time.”
The BSE Sensex today closed at 19,325.87, up
147.94 points whereas CNX Nifty index increased 41.65 points to 5850.05 points.
Dhawal Dalal EVP, Head-Fixed Income, DSP BlackRock said “We continuously seek opportunities in the fixed income assets based on our interest rate views. Going forward, we expect some inflow in Gilt Funds once the FX volatility subsides. If the current market volatility subsides by July and we see a marked improvement in the Balance of Payment as well as sustained decline in the Consumer Price Index then there is a possibility of a rate cut in the next credit policy.”
Arvind Chari, Senior Fund Manager, Quantum MF, said that the industry is expecting rate cut of 25 basis points in July as the central bank has not made any hawkish statement this time. “RBI has kept key interest rate and CRR unchanged due to a steep depreciation in rupee. RBI will maintain this stance till the announcement of Minimum Support Price (MSP). Retail investors are better off investing in dynamic bond fund at this juncture.”
Kilol Pandya, Senior Fund Manager (Debt), LIC Nomura Mutual Fund also shared the same thought about investing in dynamic bond fund. He said that it is difficult to predict the RBI’s stance in upcoming monetary policy. “In the beginning of this month when WPI inflation of May showed a decline, everybody was hopeful of monetary easing but the sharp depreciation in rupee against international currencies has played a spoilsport.”
Mahendra Kumar Jajoo, Chief Investment Officer- Fixed Income, Pramerica AMC said “I would hesitate to predict when the monetary policy will be eased as a lot depends on the prevailing market conditions.”
