RBI keeps policy rates unchanged!
Last updated: 04 Dec, 2020 | 10:53 am
- RBI on its policy meet held today announced that its has decided to keep the policy repo rate unchanged at 4% with an accommodative stance, meaning that if needed in the future they may resort to further rate cut to support the economy.
- The move has been in line with expectations, spike in inflation because of the influx of liquidity worldwide has made the job of RBI difficult making the central bank reluctant to take any further rate cuts.
- RBI GDP Forecast : RBI sees Real GDP growth for 2021 at -7.5% revised from the earlier projection of -9.5%.
- Commentary on Inflation: The outlook for inflation has turned adverse relative to expectations in the last two months. CPI inflation is projected at 6.8% for Q3FY21, 5.8% for Q4FY21 and 5.2% to 4.6% in H1FY22, with risks broadly balanced. The MPC was of the view that inflation is likely to remain elevated, thus instruments like OMO purchases, operation twists and reverse repos will continue to be used to manage inflation and liquidity.
- There was no market-moving declaration made by the RBI however it has clearly acknowledged the green shoots that are being witnessed in the economy by revising the GDP growth forecast upwards.
- Recently the central bank has opted to give priority to economic growth rather than inflation due to a major downward economic pressure during the COVID crisis. Though the economy is recovering faster than expected, after a few quarters managing inflation within the target range is going to be the major concern for the central bank.
- Invest in equities in a staggered manner. Keep your SIP’s running. Stick to large caps and index stocks that are best suited to navigate the economic crisis
- Stick to AAA-rated low duration funds and bonds over high duration funds, and long-maturity bonds as yields will remain volatile in the near future but in the medium term (2-3 years) the rate cycle is expected to bottom out and move up.