RBI Policy – No rate cuts and language continues to be cautious…

The Credit policy on December 01st was announced in the background of mixed macroeconomic signals. On the one hand the possible Fed rate hike is likely to make the dollar stronger. On the other hand, the inclusion of the Chinese Yuan into the SDR basket on 30th November means that the Yuan will strengthen due to increased demand for the currency. Both are likely to influence capital inflows into the US and China positively. The RBI therefore needs to ensure that India’s capital flows do not get competitively outdone. This will be the primer driver for the RBI. Continue reading

RBI Credit Policy

RBI Governor may hold rates this time around…

As another credit policy approaches on December 01st, the key question is what does it hold? Of course, the key question boils down to whether the RBI will cut repo rates or not. In all likelihood, the RBI may prefer to wait and watch. It will prefer to maintain status quo in this policy and take a fresh view on rates in the next calendar year. There are 4 key reasons why the RBI will not cut repo rates in this policy. Continue reading

How RBI credit policy impacts your mutual fund holdings?

As a mutual fund investor, you need to ensure that you monitor your mutual fund holdings closely. You must ensure that the portfolio mix of your mutual fund holdings is weighted towards quality stocks and not towards speculative stocks. You also need to ensure that your fund manager is not putting your money at risk by concentrating the risk on a few companies or business groups. But above all you need to understand what are the implications of regulatory and policy announcements on your mutual fund holdings. Take the case of the RBI Credit Policy which is announced every 2 months. You need to understand how these announcements impact your mutual fund holdings.

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Implications of the RBI Monetary Policy for markets

There was a crescendo of excitement that was built around the Monetary Policy announcement. In the last few days the opinions were increasingly divided. The status quo camp believed that there would be no rate cut due to uncertainties over inflation and the Fed meeting in September. The rate cut camp (including the likes of Moody’s) believed that a 25 basis point rate cut was likely due to low growth as well as the Federal Reserve Board (FRB) minutes hinting at postponing the rate hike to December. In the end the status quo camp prevailed. Now for the highlights of the monetary policy announced by the RBI on 04th August 2015! Continue reading

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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