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Top mutual fund managers analyse RBI rate cut

“It’s raining in summer already ! That’s the reaction to a surprise rate cut by RBI today where the repo rate was reduced by 40bp to 4% and reverse repo consequently is now at 3.35% (3.75% earlier)."

, ET Online|
Last Updated: May 22, 2020, 02.41 PM IST
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The Reserve Bank of India surprised the market today with a 40 basis-points-cut in the repo rate, the rate at which lends money to banks. As you know, a rate cut is always great news to debt mutual fund investors. Here four fund managers share their first impression about the RBI rate cut.

S Naren, ED & CIO, ICICI Prudential Mutual Fund
Today’s RBI announcement of cutting rates by 40 bps is a step in the right direction. Moreover, the banking system is awash with liquidity to the tune of Rs 8 lakh crore. Such a large amount of liquidity parked with RBI is not healthy from an economic standpoint. When this surplus liquidity starts coming off, it means the economy is normalising.

Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak Mahindra Asset Management Company
“It’s raining in summer already ! That’s the reaction to a surprise rate cut by RBI today where the repo rate was reduced by 40bp to 4% and reverse repo consequently is now at 3.35% (3.75% earlier).

There is no doubt that Covid crises and its repercussions on the economic prospects has led the RBI to announce these measures. The downward march of interest rates is likely to gain momentum with this move. The combination of regulatory and monetary measures are indeed the much needed steroids for the ailing economy. We expect easy liquidity conditions and downward rate movement to anchor bond yields and also ease cost of borrowing for the real sector.”

Rajat Jain, CIO, Principal Mutual Fund
"RBI today has decided to take proactive actions given the uncertainties around the overall state of the economy. Concerns on growth remain high, resulting in the need to advance the monetary policy decision. The rate cut anticipated by the bond market but the timing of it has come as a surprise. However, going forward, the market will watch for any announcement for open market operations given the large quantum of G-Sec supply this year."

Kumaresh Ramakrishnan, CIO - Fixed income, PGM India Mutual Fund
For the second time in two months, RBI at an off-cycle MPC meeting, cut key rates by 40 bps. The reverse repo, which given the surplus liquidity is now the effective operative rate, stands reduced to 3.35%.

RBI maintained its accommodative stance with a promise to ease further as it expects inflation to fall below 4% in H2. Outlook for growth remains weak with contraction expected in H1FY 20 and a slight reversal in H2.

Moratorium to borrowers has been extended for another 90 days in keeping with the lockdown taking the total to 180 days.

Surplus liquidity, a dovish stance and weak growth conditions should pave the way for further rate easing in the months ahead, causing yields to rally.

Given this background we remain overweight on high grade short term funds with duration in the 3-4 years.

Also Read

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What RBI's rate cut means for loan EMIs, fixed deposit investors

Here's how top mutual fund managers reacted to RBI rate cut

Without an RBI rate cut, market could be worse tomorrow

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