RBI Monetary Policy Review

Please see the RBI's Monetary Policy Review October 2024.‍

Key Highlights:‍

The MPC decided to keep the policy repo rate unchanged at 6.50% by a 5:1 majority.
The MPC also decided to shift the monetary policy stance from withdrawal of accommodation to ‘neutral’ to remain focused on a durable alignment of inflation with the target, while supporting growth.
The GDP and inflation forecast for FY’25 are 7.2% and 4.5%, same as previous policy guidance.
India’s growth narrative remains strong, as its primary drivers—consumption and investment demand—are gaining momentum. However, unexpected weather events and geopolitical conflicts could create major upside risks to inflation.‍

The Indian yield curve has witnessed a shift in the overall curvature since Apr’24 with yields across tenors moving lower than 7% handle.
Headline CPI below 4% in last two months has led to expectations towards an accommodative stance in future policy meetings.
Our investment positioning should be able to benefit from further yield compression in the longer end (via continued demand supply skewness, robust fiscal balance and interest rate easing) as well as the shorter end (incremental increase in overnight liquidity via adoption of accommodative stance from RBI).
Hence, we prefer allocations to Short Term Funds , positioning for decline in shorter end of the yield curve, with some duration build up, and Dynamic Bond Funds, which are judiciously positioned to benefit from declines in longer end yield curve, with an aim to revert to reduced exposures as and when the terminal rates are attained.