RBI maintains the status quo at 6.5% keeping the Repo rate unchanged and focused on the withdrawal of accommodation stance.
Reasons for RBI to maintain Repo Rate.
- RBI concerned about inflation.
- Normalizing a high rate environment.
- RBI trying ensure inflation particularly food inflation should get in RBI target area.
Our Take
EM central Banks policies were mostly run by Fed. Unless typically wrong with very high Inflation and current account deficit.
Fed likely to cut rate in sept policy meet. So, we think RBI is likely to cut the rate in Dec,2024.
In the past after first rate cut by fed equity markets go through correction. Rates cut are good for bond market. Debt market will see rally in next 2-3 years and it can give 2-3 % more over real rates.
Equity markets will become volatile with negative bias. Stay away from mid and small cap. Stay away from thematic funds (Defence) as well. There can be price or time correction. Good time to get in Large cap funds and consumption (premium) focused funds.
In short RBI in no hurry to be the first to cut.
A blog from Santosh G Akerkar. For Educational and Awareness purposes.
Best Regards,
Santosh Akerkar
