November 19, 2019
No Change in any key policy rates.
What it means
Amidst concern over rising inflation & crude oil prices, agriculture output, slower credit growth etc. RBI has kept the policy rates unchanged. Albeit it has maintained Neutral stance.
Neutral stance means that if RBI is satisfied with inflation levels & is of the view that current interest rates level are dampening growth then it may decrease policy rates. This is also known as accommodative policy.
On the other side if RBI feel that inflation is on upside then to control inflation it may increase it’s policy rates. This is called Hawkish stance.
When interest rates go up, it encourage people to save more and spend less. So when people spend less then it reduces demand. & when demand reduces traders are forced to reduce price. This way RBI brings down inflation.
Current neutral stance means RBI is closely monitoring inflation and can take step in either direction as the situation will demand.
What it means to your investment
Banks are are likely to maintain status quo on interest rates on deposits & loans. In fact banks that are flush with liquidity may even reduce interest rates on deposits to bring down their costs.
It will put pressure on duration based debt investments. So if you have investment in dynamic bond funds then talk to your advisor & take a call on the same.
On equity it will have limited impact, as stock markets are influenced by many other factors. We have shared our views on the same in our previous communication.
Asset allocation plays a very important role in timing the market and to earn optimum returns on your investments. Please discuss with your advisor or you may also write to us.
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