4th Bimonthly credit policy – Good investment opportunity for Policyholders

  • 1st Oct, 2015

In a welcome surprise, the Reserve Bank of India cut its policy Repo rate by 50 bps to 6.75% in its 4th Bimonthly Monetary Policy statement of this fiscal today. The RBI kept the CRR unchanged at 4% and cut the ceiling for holding SLR securities in HTM books for banks by 50 bps to 21.5%. RBI mentioned that bulk of its conditions mentioned in the previous policy for further accommodation have been met and that the Jan 2016 CPI inflation target is likely to be met. The RBI mentioned that while its stance would continue to accommodative, the focus of monetary action in the near term would shift to working with government towards pass-through of the cumulative 125 bps of policy rate cuts done in this calendar year.

RBI expects the CPI inflation to be a shade lower than 5.8% by Jan 2016 (against its earlier expectation of 6% by Jan 2016). RBI highlighted that the focus would now shift to bringing inflation down to 5% by end of Fiscal 2016-17. RBI expects commodity prices to remain contained for a while and expects the government to stick to its fiscal deficit targets. RBI lowered its GDP growth projections to 7.4% from 7.6% earlier for the current fiscal year. The central bank further highlighted that more domestic demand is needed to substitute weakening global growth and hence the front loaded policy cut by the RBI.

RBI increased the FPI (Foreign Portfolio Investor) limit in the Government bonds by additional INR 1.2 trn (current limit of 1.54 trn) in a phased manner by March 2018. RBI also announced a separate limit for FPI investments in State Development Loans of about INR 500 bn in a phased manner by March 2018.

We expect interest rates to remain soft over the coming months and expect RBI to stay accommodative in the coming months. The improving macro-economic scenario of the Indian economy presents a good investment opportunity for Policyholders and they would be well placed to benefit from the economic revival and would be advised to continue paying their premiums regularly.

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