Rates To Remain Range-bound

Font Size

Print

Feedback

Email

Discuss

: The Reserve Bank of India (RBI) Annual Policy Statement for 2004-05 has been in line with the current domestic macroeconomic factors given the lack of clarity on the fiscal front.

The Indian economy has just entered a growth phase and all indicators point towards stability, giving no cause for RBI to move away from the “status quo” on its monetary policy.

The only concern is on account of inflationary pressures driven by high oil prices globally.

There has been widespread correction in equity markets across emerging markets on expectations of a rise in US interest rates and liquidity tightening in China.

India has built up sufficient reserves and strength on the external front to counter potential capital flows.

We can therefore, at this stage, allow our monetary policy to be dictated by local macroeconomic factors rather than global events.

The Indian economy is well poised for sustainable growth with low risk of asset inflation.

RBI’s policy of maintaining status quo on monetary front is appropriate and will support growth in the economy.

The caution of maintaining price stability given rising commodity prices is wise as a build up of strong inflationary expectations in the economy can still derail sustainable economic growth.

RBI may pursue further structural changes upon government formation with greater clarity on fiscal measures and direction of administered interest rate levels.

We expect interest rates to remain rangebound over the next few months with the level of liquidity remaining comfortable.

Given that volatility in interest rates is expected to remain predictable driven by economic factors, actively managed debt funds like dynamic bond funds and medium term funds should outperform in the debt fund category.