RBI policy: Debt fund managers share their view
"Despite, RBI holding rates, we might still see banks cutting deposit and lending rates as liquidity remains comfortable and credit growth is muted."
“RBI left the repo rate unchanged at 6.25 per cent despite lowering its inflation outlook and GDP growth projections. There seems to be a greater concern on global oil and commodity prices and thus it indicates to us that there is now a higher bar on further rate cuts by the RBI. The change in stance from accommodative to neutral suggests to us that we might have actually reached the end of the rate cutting cycle.
Despite, RBI holding rates, we might still see banks cutting deposit and lending rates as liquidity remains comfortable and credit growth is muted.
But with the change in stance, we do not expect bond yields to fall and in fact the 25 bps sell off seen today is indicative of the fact that the best time in the bond markets is behind us. Investors would do well to lower their return expectations from bond funds.”
Lakshmi Iyer, Chief Investment Officer (Debt) & Head of Products, Kotak Mutual Fund
While the market was split between whether or not RBI will cut the rate, the central banker has come out in favour of taking a more conservative stance. It is effectively a gear shift from 3rd gear to neutral straight! The RBIs CPI target of 4 per cent also seems to be intact. Global inflationary expectations also seem a consideration for such a stance.
We view the policy as unexpectedly hawkish and the markets’ unpreparedness has led to spike in yields.
It may be prudent therefore to continue to focus on accrual strategies predominantly as guided earlier, with a top of duration especially given the sharp spike in yields.
Mahendra Kumar Jajoo, Head - Fixed income - Mirae Asset Global Investments (India)
In line with our expectations, RBI kept the key policy rates unchanged, emphasizing the neutral stance at the moment. Holding rates is in line with the broader guidance provided by earlier, since that the main factors guiding the last policy review -- global uncertainty, rising oil prices and a sticky core inflation -- continue to remain the same. RBI has also indicated its commitment to ensure an efficient and appropriate liquidity management, suggesting the short term rates may inch slightly higher and align more closely with repo rate in coming months. After the initial knee-jerk reaction, we expect bond yields to stabilize and take clues from developments in global markets in near term.