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RBI Policy & Fixed Income Outlook, June 2018

RBI Policy and Fixed Income Outlook

  • The MPC increased the policy repo rate by 25 basis points to 6.25% and kept the stance neutral. While outlook on growth remained positive, RBI sounded hawkish on core inflation front.
    • All 6 members voted in favor of the decision
    • MPC reiterated its commitment to achieving the medium-term target for headline inflation of 4% on a durable basis.
    • The MPC has hiked its CPI forecast to 4.6% ex – HRA in H1 (from 4.4 – 4.7% previously) and 4.7% in H2 (from 4.4% previously). Risks are still deemed to be tilted to upside.
  • With upside inflation risks (owing to crude, MSP), rising global yields, global monetary tightening, uncertainty on fiscal front, demand supply mismatch, bond yields may remain elevated and may marginally inch up.
  • Another rate hike over the course of this fiscal year cannot be ruled out. We continue to see value in debt portfolios with maturity of 1-4 years.