In a bid to counter the economic slowdown caused by the COVID-19 pandemic, RBI has today reduced repo rate by 40 basis points to 4%.
The central bank said that GDP growth in the current financial year will be negative and this has prompted its rate cut decision. Further headline inflation hovering around RBI’s medium term target of 4% has also allowed the central bank to cut the repo rate.
Recently, Goldman Sachs has said that India’s economy may contract by a huge 45% in the June quarter. Further, it has projected that the 5% fall in GDP for 2020-21 will be deeper compared to all “recessions" India has ever experienced.
Moreover, the central bank has also extended moratorium on all term loans by another 3 months i.e. June, July and August, 2020. Earlier in March, RBI had slashed the benchmark interest rate by 75 bps and announced a 3-month moratorium to be given by banks.
Here is what fund managers have to say RBI’s latest move:
Kumaresh Ramakrishnan, CIO, Fixed Income, PGIM India MF
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.
Lakshmi Iyer, CIO (Debt) & Head of Products, Kotak MF
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.
R Sivakumar, Head-Fixed Income, Axis MF
From an investment standpoint short bonds are likely to see opportunities across the short bonds space as the rate cut is likely to reflect in a lower YTMs across the curve. We continue to retain our positioning across all debt products and continue to favor high quality short term strategies at this juncture.
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.
