Mr. Jyoti Roy - DVP - Equity Strategist, Angel Broking Ltd
The RBi in its bi monthly MPC meeting left the key repo and reverse repo rates unchanged at 4.0% and 3.35% respectively. The RBI has also maintained its accommodative stance and has decided to look through higher inflation. The RBI has also upgraded their GDP growth estimates for FY21 to -7.5% from earlier -9.5% given strong pick up in economic growth over the last few months. Though inflation is expected to remain somewhat elevated over the next few months the RBI has decided to look through it and rates are likely to remain at current levels for the foreseeable future. While further rate cuts may be ruled out given elevated inflation levels the RBI is unlikely to raise rates in the foreseeable future which will provide comfort to the markets. The spreads between the overnight rate and the 10 year rates remain high at ~180-200 bps as against a normal spread of ~75 bps due to concerns over fiscal deficit. We believe though there are unlikely to be any rate cuts in the near future full transmission of 250bps rate cuts by the RBI so far are yet to happen which can lead to some further easing in lending rates as and when concerns over the fiscal deficit recedes.