Fund managers recommend investors to invest in short term plans and credit funds like corporate bond funds focused on medium duration.
In line with market expectations, The Reserve Bank of India in its fifth bi-monthly monetary policy review kept repo rate and reverse repo rate unchanged at 8% and 7% respectively.
The cash reserve ratio (CRR), the funds which banks have to keep with RBI, was also kept unchanged at 4%.
Giving his stance on the future policy action, RBI Governor Raghuram Rajan in a press statement said “Still weak demand and the rapid pace of recent disinflation are factors supporting monetary accommodation. However, the weak transmission by banks of the recent fall in money market rates into lending rates suggests monetary policy shifts will primarily have signaling effects for a while. Nevertheless, these signaling effects are likely to be large because the Reserve Bank has repeatedly indicated that once the monetary policy stance shifts, subsequent policy actions will be consistent with the changed stance. There is still some uncertainty about the evolution of base effects in inflation, the strength of the on-going disinflationary impulses, the pace of change of the public’s inflationary expectations, as well as the success of the government’s efforts to hit deficit targets. A change in the monetary policy stance at the current juncture is premature. However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle.”
We asked experts about what this means for investors.
Santosh Kamath, Managing Director - Local Asset Management, Fixed Income, Franklin Templeton Investments, India.