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RBI has kept the repo rate unchanged at 6.50% in the Monetary Policy Committee (MPC) that concluded on June 8, 2023.
The Central Bank cumulatively increased the repo rate by 250 bps since May 2022 before hitting the pause button in its last meeting held in April 2023. “The cumulative rate hike of 250 basis points undertaken by the MPC is transmitting through the economy and its fuller impact should keep inflationary pressures contained in the coming months”, said RBI in a press release.
It added, “It will take further monetary actions promptly and appropriately as required to keep inflation expectations firmly anchored and to bring down inflation to the target. The MPC also decided to remain focused on withdrawal of accommodation to ensure that inflation progressively aligns with the target, while supporting growth.”
Commenting on the monetary policy stance, Nilesh Shah, MD, Kotak MF said, “Indian economy is ideally balanced between growth and inflation under the RBI’s navigation. Market will be pleasantly surprised if the GDP growth for FY 24 comes as per the expectations of the RBI at 6.50%.”
Deepak Agarwal, CIO-Fixed Income, Kotak MF added, “Given that global central banks are still in hiking mode and future path of Fed Fund rate is unclear, RBI did the right thing by keeping the monetary policy stance unchanged as ‘withdrawal of accommodation’. By Aug 2023 RBI will have more clarity on the El Nino risk on inflation and the future path of Fed Fund rate and can change the monetary policy stance to ‘neutral’ in Aug 2023".
G. Pradeepkumar, CEO, Union Mutual Fund said, “We expect a prolonged pause hereon and a cut in the policy rate in the fourth quarter of FY23-24 as the inflationary pressures further moderate toward the target. Global risks and monsoon remain key uncertainties."
What should investors do?
Marzban Irani, CIO-Debt, LIC MF believes that investors should look at investing in medium to long term debt funds. He said, "Existing carry despite recent fall in yield continue to remain attractive and should not be missed out. Medium to Long Duration funds may be a preferred investment option for investors."
Pankaj Pathak, Fund Manager-Fixed Income, Quantum MF also feels that that investors should invest in medium to long term bond funds. He said, "Investors with 2-3 years holding period should take a medium term and can invest in dynamic bond funds as long term fixed income allocation. Investors with shorter holding period should stick to liquid funds."
