In the monetary policy meeting today, RBI has kept the repo rate unchanged at 4% while maintaining its accommodative stance to support economic growth.
This comes amidst a second wave of rising covid cases.
The committee has unanimously decided to continue with the accommodative stance as long as necessary to sustain growth on a durable basis and continue to mitigate the impact of covid-19 on the economy, while ensuring that inflation remains within the target going forward.
The projection of real GDP growth for 2021-22 has been retained at 10.5% with 26.2% in Q1; 8.3% in Q2; 5.4% in Q3; and 6.2% in Q4.
Interest rates are likely to remain range bound going forward as RBI is committed to ensure easy liquidity and low repo rates says Sandeep Bagla, CEO, Trust MF. “Corporate bond spreads are likely to remain at moderate levels on back of restrained supply and continued demand from institutional investors. Unless inflation expectations start rising in the future, fixed income investors will do well to remain invested in Indian bond funds,” he said.
Lakshmi Iyer, CIO (Debt) & Head Products, Kotak MF said, "RBI’s move to introduce G-SAP – secondary market GSec acquisition program is a master stroke by the RBI. This would reign in sharp spike in g-sec bond yields. We expect the yield curve to flatten from the current levels with the longer end of the yield curve compressing faster than the short end."
The policy outcome is supportive of long term bond yields, says Kumaresh Ramakrishnan, CIO-Fixed Income, PGIM India MF. “We would continue focusing on banking & PSU, corporate bond and dynamic bond fund categories, post today's policy,” he said.
Gaurav Awasthi, Senior Partner, IIFL Wealth Management said, “The RBI decision to hold rates was on expected lines. The key was the government's comments on holding the policy accommodative as long as necessary rather than to a time-bound limit to support the economy. The g-sec acquisition program will also lend support to the yields, which had risen substantially under pressure from rising government borrowings.”
Pankaj Pathak, Fixed Income Fund Manager, Quantum MF says investors should expect gradual rise in bond yields over medium term. “We also expect very high volatility in interest rate going forward. Dynamic bond funds could be an option for investors with long time horizon and higher risk appetite. Conservative investors should stick to liquid funds,” he said.
