Investors take stand on RBI for dropping accommodative stance

The central bank maintained status quo by keeping the benchmark repo rate at 6.25 per cent. The decision that was taken unanimously by all the six members of the monetary policy committee (MPC) indicate the end of interest rate cut cycle.

All the other policy rates like cash reserve ratio (CRR) at 4 per cent, reverse repo at 5.75 per cent, statutory liquidity ratio (SLR) at 20.50 per cent and marginal standing facility (MSF) at 6.75 per cent were kept unchanged. 

While the status quo may not have surprised experts, the change in stance of RBI from 'accommodative' to 'neutral' might be something that investors will have to factor, while making their investment decisions. 

The change in stance by RBI to neutral may have surprised market participants. RBI's statement to keep headline inflation closer to 4 per cent on a durable basis and in a calibrated manner, leaves less room for further rate cuts. 

With no rate cut in this fiscal, investors will have to balance and shuffle their portfolio allocation between equity and debt assets. 

The year 2016 saw investors encashing double digit returns mainly due to the reduced interest rates. With change in trajectory for interest rates, the portfolio allocation will have to be reworked for several investors. 

The shift in asset class is possible from debt instruments to equity, assuming the rates stay where they are for longer period.