{"id":81,"date":"2019-04-03T09:44:11","date_gmt":"2019-04-03T09:44:11","guid":{"rendered":"http:\/\/blog.certifiedfinancialguardian.com\/?p=81"},"modified":"2019-04-03T11:30:45","modified_gmt":"2019-04-03T11:30:45","slug":"will-rbi-cut-rates-in-its-april-policy-and-how-to-invest-in-debt-funds-now","status":"publish","type":"post","link":"https:\/\/blog.certifiedfinancialguardian.com\/index.php\/2019\/04\/03\/will-rbi-cut-rates-in-its-april-policy-and-how-to-invest-in-debt-funds-now\/","title":{"rendered":"Will RBI Cut Rates In Its April Policy And How To Invest In Debt Funds Now?"},"content":{"rendered":"\n

Retail inflation for February 2019 inched up to 2.57% from 1.97% in January 2019, showed the data released by the Ministry of Statistics and Programme Implementation<\/a> or MOSPI in March 2019. Deflation in food and fuel price was the primary reason for the lower reading. ‘Clothing & Footwear’ and ‘Housing’ and segments remained rather flat.<\/p>\n\n\n\n

It appeared that\nweak consumer spending and rural distress were weighing on the inflation data,\nas both rural and urban inflation readings were low.<\/p>\n\n\n\n

Graph 1: CPI Inflation has mellowed down.\nBut will it remain low for long?<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

Data as of February 2019
(Source: MOSPI, RBI<\/a>, PersonalFN Research)<\/p>\n\n\n\n

Amidst flagging\neconomic growth (India\u2019s GDP tumbled to 6.6% in the December 2018 quarter), the\ngovernment is now looking at the RBI to reduce policy rates in order to\nreinvigorate economic growth. <\/p>\n\n\n\n

Will RBI reduce policy rates in its 1st<\/sup> Bi-monthly\nMonetary Policy Statement for 2019-20?<\/em><\/strong><\/p>\n\n\n\n

Well, the\nclamour for a rate cut is on a rise. A number of economist and brokerages\nexpect the central bank to cut repo policy rates, even as \u2018core\ninflation\u2019\u2013\u2013which excludes food and fuel prices \u2013\u2013appears sticky at 5.5%.
<\/p>\n\n\n\n

Graph\n2: RBI’s quarterly projection for CPI inflation (y-o-y)<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n


(Source: RBI’s 6th Bi-Monthly Monetary Policy Statement for 2018-19<\/a>)<\/p>\n\n\n\n

In\nits last, i.e. the 6th<\/sup> Bi-monthly Monetary Statement for 2018-19, the\nrepo policy rate under the liquidity adjustment\nfacility (LAF) was reduced by 25 bps from 6.5% to 6.25% with immediate\neffect. This was done in consonance with the objective of achieving the\nmedium-term target for CPI inflation of 4.00% within a band of +\/- 2 per cent\nwhile supporting growth.<\/p>\n\n\n\n

The\nMonetary Policy Committee (MPC) also decided to change the monetary policy\nstance from ‘calibrated tightening’ to ‘neutral’.  <\/p>\n\n\n\n

Table: How did the six-member MPC vote in the last\npolicy meeting?<\/em><\/strong><\/p>\n\n\n\n

\"\"<\/figure><\/div>\n\n\n\n

(Source: Minutes of the Monetary Policy Committee Meeting February 5-7, 2019<\/a>)<\/p>\n\n\n\n

Out\nof the six-member MPC, four members, including RBI Governor, Mr Shaktikanta\nDas, voted in favour of a policy rate\ncut, while only two members voted in favour of keeping policy rates unchanged. So, the majority were in favour of a policy rate cut.<\/p>\n\n\n\n

The path to inflation and interest rates going forward\u2026<\/strong><\/p>\n\n\n\n

The\ncentral bank has projected headline inflation to remain soft in the near term\nreflecting the current low level of inflation and the benign food inflation\noutlook.<\/p>\n\n\n\n

Beyond the\nnear-term, the RBI is of the view some uncertainty warrants careful monitoring.\nThe central bank has observed:<\/p>\n\n\n\n