Debt Note: RBI Monetary Policy | February 2019

 In Blogs, Fixed Income Markets

Investment Strategy:

Based on the outcome of the recent RBI policy, it would make sense to revisit the investment strategy for fixed income investments.  A neutral stance indicates that the behaviour of inflation and growth is uncertain. In such a situation, it would make sense to avoid duration calls and stick to short-term and medium-term investments. Quality is still the focal point. Investors must prepare for upcoming opportunities by equipping themselves with sufficient liquidity.

This is a good time to evaluate your investments and align them to the future. If you would like to consult with our advisors, please speak to your relationship manager.

Market Outlook:

February may prove to be an eventful month for bond market participants. On the 1st, we had the Interim Budget, between the 5th and 7th the MPC meeting, and the Finance Minister is expected to meet with the RBI on the 9th. In its last meeting, the MPC announced that it would cut the policy rate by 0.25% and change the policy stance to neutral.

The economy is sending a lot of mixed signals and this warrants a neutral stance. On the inflation front, CPI is low but core inflation is high. Regarding growth, GDP growth continues to be positive but IIP numbers for November were at a record low. The fears of an excessively populist budget affecting the fiscal deficit have been allayed. The government has displayed an intent to remain fiscally disciplined. Questions regarding the interim dividend are yet to be answered. The RBI is clear that it will follow a data-driven wait and watch approach on future policy actions. However, the outlook remains positive.

Globally, economies are slowing down. The outcome of the recent US Federal Reserve meeting was that the Fed would adopt a patient approach. There is no longer a rush to raise interest rates. Brexit negotiations are still up in the air. China’s growth has come under the microscope. Investors should be aware of global events that could throw interesting investment opportunities.

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