Reduction in inflation forecast for FY19 makes RBI policy eventful

Narnolia, a premium brokerage house in India offers an in-depth research and strategic advisory in share trading, insurance, mutual funds, NPS, PMS & AIF.
 
MUMBAI, India - May 16, 2018 - PRLog -- RBI credit policy was in –line with market expectation in terms of maintaining status quo on policy rates. What made the policy eventful was sharp reduction in inflation forecast for FY19.

Though stance on policy rate was as anticipated given the backdrop of government assertion that both fiscal deficit and revenue shortfall in FY18 would be lower than revised budget estimate and that market borrowing would be only Rs 2.88 lakh crore in 1HFY19 as against Rs 3.72 lakh crore in 1HFY18. Falling food inflation was hinting at lower inflation as far as first half of FY19 is concerned but the way RBI has lowered inflation forecast for the full financial year 2018-19 hints that there would be a long pause in RBI policy rate and there would not be any rate raise this calendar year. Though we believe there remain three key uncertainties – fiscal deficit in FY19, inflation particularly food in second half and pace of normalization of US monetary policy. But today's RBI policy surely soothes nerves of Indian investors in an immediate sense.

10 year bond yield falling by almost 2% today to 7.15% augurs very well for equity market. 10 year bond yield approaching 7.7% in February this year was one of the key trigger for sharp losses on Indian bourses. Now, falling bond yield should surely help earning multiple to increase. Nifty has already been in the process of bottoming out over last one month trading around its 200 day moving average. It surely will get a positive boost from today's RBI policy.

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