The RBI seemed to be very confident that the growth momentum of the economy will continue and has accordingly revised the real GDP growth for FY25 from earlier 7% to 7.2%.
The RBI MPC left its inflation forecast for this fiscal year unchanged at 4.5 percent, expressing its commitment to bring the inflation level back to the target of 4% on a durable basis.
We expect the RBI to continue to focus on fine-tuning liquidity conditions through VRR/VRRR auctions in order to align the overnight rates with the repo rate.
The MPC meeting outcome was cheered by the equity market, but the debt market didn’t react much to the MPC meeting announcement.
Insurance companies with a greater focus on fixed-income portfolios in their life funds would not have been significantly impacted by this MPC decision.
13:52 (IST) 7 Jun 2024
Ajit Banerjee, Chief Investment Officer, Shriram Life Insurance Company
“The outcome of the RBI‘s monetary policy for June’24 was broadly as per market expectations, except for the fact that the decision of the rate-setting panel was taken with a majority of 4:2. The RBI seemed to be very confident that the growth momentum of the economy will continue and has accordingly revised the real GDP growth for FY25 from earlier 7% to 7.2%.
The RBI MPC left its inflation forecast for this fiscal year unchanged at 4.5 percent, expressing its commitment to bring the inflation level back to the target of 4% on a durable basis. The RBI governor also assured and emphasised the importance of maintaining an orderly liquidity position in the financial market, and its approach will be nimble and flexible for the same. We expect the RBI to continue to focus on fine-tuning liquidity conditions through VRR/VRRR auctions in order to align the overnight rates with the repo rate. However, larger-than-expected FPI flows could see the use of durable instruments.
The MPC meeting outcome was cheered by the equity market, but the debt market didn’t react much to the MPC meeting announcement. The market would perhaps be more keen to look for the Union Budget announcement on the government’s fiscal roadmap going forward. Insurance companies with a greater focus on fixed-income portfolios in their life funds would not have been significantly impacted by this MPC decision. The equity portfolio of the insurance companies has made some positive MTM gains, though.”
