4th Bimonthly Monetary Policy 2016-17

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

Dr. Urjit Patel, the new RBI governor and the recently formulated Monetary Policy committee (MPC) and presented their first monetary policy on 04-Oct-2016. The committee comprises of 6 members, 3 members from the RBI and 3 members appointed by the Government.

As we had expected, the MPC reduced the key policy rates by 0.25%, with all the six members of the MPC unanimously voting in favor of a rate cut.

Hence, the policy Repo rate now stands at 6.25% with the underlying tone of the policy being accommodative while supporting growth.

GDP growth estimates for FY17 are maintained at 7.6%, with strong consumption and better agricultural growth being important drivers.

CPI inflation target stands at 5% for the current year, with lower upside risks to the same. The sharp drop in inflation readings recently reflects a downward shift in the momentum of food inflation, which has opened up space for policy action.

We expect interest rates to remain on a downwards trajectory over the coming months, especially from a demand-supply perspective and expect RBI to stay accommodative, while keeping banking system liquidity closer to neutral.

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 if they continue to pay their premiums regularly and remain invested in the India growth story.

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