AMFI Registered Mutual Fund Distributor | SEBI registered Investment Adviser


Share | Email Print more
Update from Research Desk on the Second Quarter Review of Monetary Policy 2013-14
October 29, 2013

This is a brief update on the Second Quarter Review of Monetary Policy 2013-14.

Author : Dr. Renu Pothen

Update Monetary Policy_Sept2012

The second Policy Statement from the Reserve Bank Governor, unlike the first, was on expected lines. Market participants were expecting RBI to cut the Marginal Standing Facility (MSF) and hike in repo rate.

Measures taken in today’s policy meet:

  • Marginal Standing Facility (MSF) rate reduced by 25 basis points from 9.0 per cent to 8.75 per cent with immediate effect;
  • Policy repo rate under the Liquidity Adjustment Facility (LAF) increased by 25 basis points from 7.5 per cent to 7.75 per cent with immediate effect; and
  • Liquidity provided through term repos of 7-day and 14-day tenor increased from 0.25 per cent of net demand and time liabilities (NDTL) of the banking system to 0.5 per cent with immediate effect.

The Reserve Bank governor has unwinded the exceptional liquidity tightening measures taken by the Central Bank in July 2013 and by doing this, the process of re-aligning the interest rate corridor to normal monetary policy operation is now complete. At this juncture, we continue to maintain our positive stance on the shorter end of the curve. A glance through the policy document reveals that inflation continues to be a concern for the RBI Governor and team, which means that rate hikes are the way forward as far as the monetary policy stance is concerned.

Hence our advice to the investors is on these lines:

Investors with idle cash can invest in Ultra-Short Term Funds. The recommended funds in this category include Axis Treasury Advantage Fund, ICICI Prudential Flexible Income Plan and Templeton India Ultra Short Bond Fund.

Investors with a time horizon of 6-12 months can consider Short-Term Debt Funds. Our recommended funds are PineBridge India Short Term Fund, Templeton India Short Term Income Plan, DWS Short Maturity Fund and Reliance Regular Savings Fund Debt Option.

Investors with a time horizon of 12-18 months can consider investing into dynamic bond funds like IDFC Dynamic Bond Fund, SBI Dynamic Bond Fund and UTI Dynamic Bond Fund.

For our existing investors who are holding onto duration funds, our advice is to stay put in the same. The short term volatility is definitely going to be there and investors will have to bear with this for some more time till the Central Bank is comfortable with the inflation dynamics and makes growth the focal point of its monetary policy.

Dr. Renu Pothen
Research India

Disclaimer: iFAST and/or its content and research team’s licensed representatives may own or have positions in the mutual funds of any of the Asset Management Company mentioned or referred to in the article, and may from time to time add or dispose of, or be materially interested in any such. This article is not to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. No investment decision should be taken without first viewing a mutual fund's scheme information document including statement of additional information. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. Please read our disclaimer on the website.Please read our disclaimer in the website.

Comments (0) | Comment on this Article
 (Click on Comments/Comment on this Article to show or hide comments/post a comment)
Recommended Funds
Recommended Portfolios
Chart Centre
Risk Profiler