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The RBI has increased the repo rate by 50 bps to 5.90% on September 30, 2022. This is the third consecutive time that the repo rate has increased by 50 bps. The earlier hikes were in June 2022 and August 2022.
The hike is no surprise as inflation continues to be a concern. “In the MPC’s view, inflation is likely to be above the upper tolerance level of 6% through the first three quarters of 2022-23, with core inflation remaining high”, said the Central Bank in a press release.
It added, “The MPC also decided to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.”
Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra MF said, “Bond yields could see some respite buying in the near term, but would continue to closely monitor global yields, especially UST (United States Treasury) for way forward. Also weighing in on bond markets would be the likelihood of India bonds’ inclusion in Index, which may not culminate anytime soon.”
Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC said, “For long-term fixed income investors, dynamic bond funds are best suited in this volatile market environment for a 2-3 year investment horizon. Investors with a low-risk appetite and shorter holding periods should stick to liquid funds.”
Puneet Pal, Head – Fixed Income, PGIM India Mutual Fund said, “We recommend that investors should increase their investments in actively managed short duration products, while selectively looking at dynamic bond funds as per their risk appetite.”
