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Fund managers react to RBI policy

The RBI hiked repo rate by 25 bps to 6.50 per cent in its third bi-monthly monetary policy review of FY 2018-19.

ET Online|
Updated: Aug 01, 2018, 05.18 PM IST
Rajat Jain, CIO, Principal Mutual Fund:

“RBI Monetary Policy Committee decided to raise the benchmark rates by 25 basis points in its third bi-monthly monetary policy presented today, while maintaining a neutral stance. With RBI reiterating the neutral liquidity stance, we would not be surprised with bigger amount of OMOs coming in the second half of current fiscal year. With the policy uncertainty out of the way, the fixed income market is expected to stabilise at current levels. The broad range for 10 year benchmark Gsec is likely to be 7.60-7.90 per cent in the near term.”

Avnish Jain, Head – Fixed Income, Canara Robeco Mutual Fund:

“The Monetary Policy Committee (MPC) voted 5-1 to raise the repo rate by 25 bps to 6.5 per cent while maintaining a neutral stance, focusing on its inflation mandate. The MPC noted that the growth continued to be robust with high frequency indicators like tractor and two-wheeler sales and passenger vehicle demand showing good growth, while there was also increase in cement and steel consumption. Inflation showed an uptick on back of increase in core inflation and fuel, though food inflation remains muted. While a good monsoons and cut in GST rates, if passed to consumers, are likely to dampen food inflation, MSP increase is likely to add to CPI inflation. Though oil price have moderated a bit, they still remain elevated, posing risk to inflation. Further core inflation increased significantly in past few months reflecting pass through of higher input costs and improving demand. Growth is expected to remain robust with GDP projected at 7.4 per cent for FY2019.

Overall the policy is on expected lines with the MPC continuing to closely watch inflation. With two back to back rate hikes delivered, it is likely that the MPC may be in a pause mode in October policy awaiting more information evolving global conditions especially on commodity prices and trade spats, pass through of MSP hikes, and impact of monsoon on food inflation. Further the MPC may wait to see the impact of two rate hikes, as there is lagged impact of monetary policy moves, on macro-economic parameters. Markets are likely to remain range bound with 10-year yield likely to remain in 7.75-8 per cent range.”

Amit Tripathi, CIO – Fixed Income Investments, Reliance Mutual Fund:

“The hike in repo rates by Reserve Bank of India (RBI) is in line with our expectations. We continue to maintain our neutral stance and don’t see any major surprises in the market,” says Amit Tripathi, CIO-Fixed Income Investments, Reliance Nippon Asset Management. “Going ahead markets will remain steady. Both two to five years G-Sec and one to three years corporate bonds look attractive from the current levels because of absolute yields as well as due to the steep yield curve.”

Pankaj Pathak, Fixed Income Fund Manager, Quantum Mutual Fund:

“With two back to back rate hikes, the RBI has reaffirmed itself as a proactive inflation targeting central bank. The 25 bps hike is broadly in line with the market expectations and is unlikely to move bond yields substantially in any direction.

The neutral policy stance indicates that this tightening cycle will not be very extensive. However, the RBI may remain vigilant over upside risks to inflation emanating from MSP hikes, higher government spending and improving rural demand.

If the CPI inflation expectations exceeds the 5 per cent, the April-June 2020 forecast of RBI, we should expect the repo rate to then move towards the 7 per cent mark. But for now we expect them to remain on hold for the rest of 2018.

Bond markets may find support from increased OMOs by the RBI in the second half of FY19. Bond yields for short maturity papers between one to five years continue to remain attractive.

We expect deposit and lending rates to increase in the coming months.”

Navneet Munot, CIO, SBI Mutual Fund:

"RBI raised the repo rate by 25 bps to 6.50 per cent, making it the second hike this year. Elevated crude price, hardening of household inflation expectations, rising wage and input cost for businesses, risks of fiscal slippage guided the rate hike decision even as recent GST rate reduction and softening of commodity prices provides marginal comfort. The central bank refrained from conclusive comments on the inflationary impact of MSP hike as it depends on the final implementation strategy. It retained its optimism on growth. Despite advocating the neutral stance, we saw back to back hike in rate as monetary policy typically works with a lag of several quarters. To that extent, as the RBI stay firm on its 4 per cent inflation target, it has chosen to be pre-emptive in rate hikes. From here on, we asses that the central bank should now pause for next two meetings and resume the rate hike (if any) only in the next year, after the trends in global commodity, MSP and fiscal has further evolved."

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