RBI's Mid Quarter monetary Policy Review - June 2013
RBIs MidQuarter Monetary Policy ReviewJune 2013At 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.