Why the Decision of the MPC to Not Cut Rates was a Good Decision

The markets were largely disappointed by the decision of the Monetary Policy Committee (MPC) to maintain status quo on rates. The expectation was for a 25-50 bps cut in rates. However, the choice of the MPC not to cut rates was a good decision in retrospect. Here is why… Continue reading

Key takeaways from the December 2016 Monetary Policy

The RBI monetary policy announced on December 07th 2016 had an element of surprise in that it maintained status quo on repo rates. Considering the low levels of inflation, weak growth and the side effects of demonetization, the markets were expecting a rate cut in the range of 25-50 bps. However, the RBI chose to err on the side of caution.. While the details of the deliberations of the Monetary Policy Committee (MPC) will be available on December 21st, there was virtual unanimity on the decision to maintain status quo on rates. Here are the key highlights of the monetary policy announcement… Continue reading

Rate cut and MSCI overweight; China worries continue for India…

When China cut rates by another 25 basis points effective October 24, it marked the sixth consecutive rate cut in the last 11 months. The rate cut by China is not great news for emerging markets in general and India in particular. India will have worries on two fronts. Firstly, the rate cut by China is going to have its own medium term implications for Indian equities. Secondly the decision by Morgan Stanley Capital International (MSCI) to include Chinese and Hong Kong ADRs in the MSCI emerging market basket is also not great news as it will lead to a lower MSCI allocation to India. Remember, MSCI Emerging Markets Index is the undisputed benchmark for emerging market allocations, especially among ETFs, Index funds and other active and passive portfolio managers.

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RBI Credit Policy – Should we expect a rate cut in August?

Come August and the topic once again veers around to the forthcoming bi-monthly monetary review. Will there be a rate cut; seems to be the overriding question. Many of the macros are, interestingly, supporting a rate cut. But the rate cut decision in August may hinge on factors outside of macros. Let me explain!

To begin, macros are favorable…

Inflation is well in control around the 5% mark. The biggest X-factor was the monsoon rainfall. While early July was a fairly dry spell, the deficit seems to have been made up in late July. At the end of the Monsoon, the overall deficit is unlikely to be higher than 6-7%. Secondly, Q1 results have been fairly disappointing and the pressure on operating profits is quite visible. This may again make the case for a rate cut. With major banks starting to pass on rate cuts to the end customer, the RBI cannot really say that transmission is not happening. So, what now? Continue reading

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