3rd Bimonthly Monetary Policy 2016-17

By Mr.Sampath Reddy, CIO Bajaj Allianz Life Insurance.

The Reserve Bank of India came out with the 3rd Bimonthly Monetary Policy statement of this fiscal today. As expected by us, the RBI maintained its repo rate at 7.25% and kept the CRR and SLR unchanged at 4% and 21.5% respectively.

RBI mentioned that the June policy action (repo rate was cut by 25 bps in June) was front loaded, and hence it was prudent to keep the policy rates unchanged in this policy.

RBI also reiterated that it would continue to maintain its accommodative stance and ensuring the adequate credit availability across sectors.

RBI mentioned that inflation readings have largely been in line with its April and June policy projections, though the readings surprised somewhat on the upside in June. However, RBI lowered its Jan-March 2016 projections by 20 bps with risks broadly balanced at 6.0% for Jan 2016.

On the growth front, RBI mentioned economic recovery is still work in progress and investments is still weak although there signs of pick up in urban demand.

We expect interest rates to remain on a downwards trajectory over the coming months and expect an additional 25 bps cut in policy rates in this calendar year. With inflation expected to stay benign and growth still to pick up, RBI would continue to stay accommodative.

The improving macro-economic scenario of the Indian economy presents good investment opportunity for Policyholders. Policyholders would be well placed to benefit from the economic revival by continuing to pay their premiums regularly and remain invested in the India growth story.

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