Post Monetary Policy

Please find appended below the post monetary quote by Mr. Rahul Goswami, Chief Investment Officer– Fixed Income, ICICI Prudential AMC

The 3rd bi-monthly monetary policy by RBI, more on expected lines has been neutral and balanced, whereby, the central bank has kept the policy rates unchanged; However, to enhance the credit availability to productive sectors of the economy, RBI has increased flexibility for banks by reducing the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22.5% to 22.0% of their NDTL.

RBI has acknowledged the moderation in retail inflation, indicating that broad based moderation is accompanied by deceleration in the momentum as well. We expect the CPI inflation coming much lower than RBI’s expectation of 8%, panning out closer to 7.5% by Jan 2015. On the growth projections, we continue to believe that there is high probability of GDP close to 5.50%, with somewhat downside risk because of lower monsoon impacting agricultural production.

Our medium term expectation on moderation of interest rates continue to be strong, and this comes from the view that CAD will remain moderated at less than 2% of GDP and CPI inflation coming below RBI target of 6% by Jan'2016, thereby we continue to be believe that long-term duration funds are good investments to buy for an investment horizon of medium to long term.