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Update from Research Desk on Second Quarter Review of Monetary Policy 2012-13
October 30, 2012

Our take on Second Quarter Review of Monetary Policy 2012-13

Author : Dr. Renu Pothen

Update Monetary Policy_Oct2012

In the Second Quarter Review of the Monetary Policy 2012-13, the central bank decided to remain fence sitters and left the policy rates unchanged this time as well. We have always been of the view that RBI will not aggressively start cutting rates till inflation comes within their comfort zone. This has been clearly reiterated in the policy review by the Governor when he stated that although growth has moderated, inflation pressures continue to remain a key challenge. The government definitely has woken from its long slumber and is showing an interest in solving major issues on the macroeconomic front. We are of the view that  if inflation eases in the coming months, barring any uncertain events either on the domestic or global front, and if North Block is able to implement the major reforms, then a moderate reduction in rate cuts can be expected in the coming months. In this scenario, we continue to stay put on our stance on short term and dynamic bond funds.

Our recommended funds in the short term space are PineBridge India Short Term Fund and Templeton India Short Term Income Plan. Our conservative investors and all those who still wish to lock in their surplus in 1 year FMPs can consider our recommended short term funds. In the dynamic bond funds category, we are positive on Birla Sun Life Dynamic Bond Fund, IDFC Dynamic Bond Fund and Reliance Dynamic Bond Fund. IDFC Dynamic Bond Fund and Reliance Dynamic Bond Fund have an average maturity of 10.2 years and 9.3 years respectively as on September 2012, which means that the fund managers are showing confidence in taking duration calls. Hence, these funds are for those investors who are fine with some volatility in their portfolios for the extra alpha that will be generated against the risk taken.

Dr. Renu Pothen
Research India

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