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12Th
October 2019
The
RBI MPC cut key repo and reverse repo rates by 25 bps as was widely expected by
the market and us. Repo is now at 5.15% and reverses repo at 4.90%. 5 members
voted in favor of 25 bps and 1 member for 40 bps. An accommodative stance also
has been retained. The MPC continues to accord primacy to growth in the
backdrop of the recent sharp decline as evidenced by the April to June qtr real
GDP growth at 5%. RBI has cut their own GDP forecast for FY20 from 6.9% to
6.1%, while more or less maintain their inflation forecasts. There is no
commentary on the recent tax cuts or their expected impact on the government's
fiscal position.
Gilt
yields rose mildly and prices fell post-announcement as the cut was on expected
lines and RBI MPC did not do any aggressive cuts. Banking System liquidity
remains ample. IN this backdrop, as far as gilt yields are concerned, supply
will be the main factor moving prices going forward. We expect money market
yields to remain stable with a downward bias.
