Note on RBI Monetary Policy by Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund
Below the Note on RBI Monetary Policy by Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund
PGIM India MF View- A long Pause
In our view, this policy has a dovish undertone. The RBI governor and the MPC statement acknowledged the moderation in core Inflation as past monetary policy action works through the system. The governor’s statement mentioned about the risks of overtightening and unlike the previous policy today’s statement did not mention OMO sales explicitly in terms of policy measure though in the post policy press conference RBI governor said that OMO option can be used, if required and the status quo on rates should not be construed as a neutral stance.
We believe the current macroeconomic backdrop has turned decidedly positive and the global monetary tightening cycle, which began in a synchronous manner globally last year, has taken a pause. Crude prices have fallen and global bond yields have retracted sharply from their highs over the course of the last one month. Given the fact that India’s growth is pretty robust with Inflation also under control, RBI is likely to be on long pause. RBI will continue to focus on liquidity management and macroeconomic stability. FPI flows in debt market have registered a 6yr high after the inclusion of Indian sovereign bonds in the JP Morgan emerging market Index (GBI-EM). We expect these flows to continue, helping bond yields drift lower.
We continue to believe that rate cuts in India will start only after the rate cutting cycle has begun in the advanced economies which we expect from Q2/Q3 2024 onwards. Bond yields tend to react in advance of the start of a rate cutting cycle and thus we believe it is the right time for investors to start increasing their allocation to Fixed Income especially at the longer end of the curve.
Investors with medium to long term investment horizon can look at funds having duration of 3-4yrs with predominant sovereign holdings as they offer a better risk reward currently. Investors having an Investment horizon of 6-12 months can look at the money market funds as yields are pretty attractive in the 1yr segment of the curve. We expect the benchmark 10yr Bond yield to trade in a range bound manner between 7.10% to 7.35% over the next couple of months.
Above views are of the author and not of the website kindly read disclaimer
Rupee strengthens against US dollar on Wednesday
Aadhaar, Jan Dhan giving big push to digital India ecosystem: Instamojo`s CEO
Reaction on RBI Policy By Mr. Mohit Jain, Krisumi Corporation