Quote on today’s RBI Policy By Pankaj Pathak, Quantum Mutual Fund
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Below is quote on today’s RBI Policy By Pankaj Pathak - Fund Manager - Fixed Income, Quantum Mutual Fund
We had expected the RBI to hike the policy reverse repo rate from 3.35% as a firm signal that ‘the Indian economy is no longer in crisis’, and also provide guidance on how interest rates and liquidity will continue to be normalised going into 2022. The status quo with no change in interest rates and no change in the guidance and outlook from the RBI was thus contrary to our expectations.
We believe that the Indian economy is recovering much better than expected and is showing signs of continued revival.
Also, that underlying inflation pressures are higher than reported.
This should mean that RBI will remove crisis level measures moving forward.
Investors should expect that interest rates on both deposits rates and lending rates will rise in the coming year, albeit gradually.
As the RBI sucks out the excess liquidity in the banking system over the next month, we would expect the overnight rates to move from the current levels of 3.35% (Reverse Repo Rate) towards the Repo Rate of 4%.
This would mean that accrual returns on a very short term, low market risk products like overnight and liquid funds could rise in the coming months.
As the RBI hikes rates, Investors should prefer playing this rate hiking cycle by investing in liquid funds over keeping the money in bank savings accounts.
They should also avoid locking in their money for now in longer tenor fixed deposits.
As we have been guiding, return expectations from fixed deposits and bond funds should remain low.
We expect medium to long term bond yields to be range-bound but we mark out, Oil prices and the signals from the US Federal Reserve as the key risk indicators.
Above views are of the author and not of the website kindly read disclaimer
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