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The monetary policy committee (MPC) of the RBI has decided unanimously to increase the policy repo rate by 50 basis points to 5.4%. With this hike, RBI has taken the policy rate back to the pre-covid levels.
Commenting on the impact of rate hike on debt funds, debt fund managers said that while they expect short term rates to continue to inch upwards and align with higher policy rates, the long term rates may remain range bound.
"(Thanks to) the recent improvement in macro environment, long term rates will likely remain range bound. Short term rates may continue to realign upwards in line with higher policy rates," said Mahendra Jajoo, CIO, Fixed Income, Mirae Asset Investment Managers.
Puneet Pal, Head-Fixed Income, PGIM India MF, said investors can increase their investments in actively-managed short duration products and look at dynamic bond funds, provided they have the right risk appetite.
Should you expect more rate hikes?
Fund managers see RBI hiking repo rates further in coming months, given that there is still a 100 bps difference between the current repo rate (5.4%) and FY 2023 inflation projection (6.7%).
"Inflation seems to be at the forefront of the move as they maintained CPI forecasts intact at 6.7% for FY 2023. To us, this means we are not done with rate hiking cycle yet," said Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mahindra AMC.
They see repo rate reaching 6% by the end of 2022.
"We expect repo rate to be in the range of 5.50% to 6.0% by December," said Marzban Irani, CIO (Debt) of LIC MF.
