MUTUAL FUNDS

Till inflation stays below 6% for some period of time, we do not expect any major policy action from the RBI<
18-Jun-12   16:04 Hrs IST
1) RBI in its mid-quarter monetary policy review has kept the repo rate and cash reserve ratio (CRR) unchanged, what are your reactions towards it?

By not cutting rates in this policy at all, RBI is keeping its arsenal ready for the July policy. Till inflation stays below 6% for some period of time, we do not expect any major policy action from the RBI. In all fairness the worsening fiscal situation is responsible for crowding out investment and monetary policy can do very little about this. The growth-inflation conundrum has reached a stage, where only swift well-rounded action from all stake holders can alleviate matters. Policy action on reduction of subsidies, flow of FDI and FII, reduction in current account deficit and addressing supply side measures will trigger dovish RBI policy. Today's status-quo will result in increase of yields across the curve since the markets had factored 25-50 bps cut in CRR and Repo. More impact will be felt on short-term yields. It will also disappoint the equity markets and all rate sensitives will have their upward moves capped.

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