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Below the Quote on Post RBI Policy Comment by Sneha Pandey, Fund Manager- Fixed Income, Quantum Mutual Fund

The RBI’s June pause was no surprise. It signals that administrative levers and not rate hikes remains the frontline defense against INR volatility.

CPI inflation is inching higher on the back of higher fuel and food costs. Our estimates suggest headline inflation for May 2026 to be ~3.9% YoY and core inflation ~ 3.7%. The real risk lies in evolving El Niño conditions, but strong Rabi harvests, healthy buffer stocks, and comfortable reservoirs provide a cushion.

Calls to scrap long-term capital gains tax have grown louder, but with equity-related taxes now contributing nearly a third of personal income tax collections, fiscal pressure may linger.

We believe the RBI is clearly signaling that defending the INR will rely on administrative levers rather than blunt rate hikes. Measures such as gold import restrictions, easing investment limits, and even a potential dollar bond issuance remain on the table.

At the same time, we expect Open Market Operations of nearly Rs 5+ trillion in FY27 to balance FX intervention and sustain reserve money growth, ensuring the bond market remains liquid.

This dual strategy: currency support through targeted measures and liquidity assurance via OMO - underscores the RBI’s preference for stability without sacrificing growth.

In volatile times, investors may evaluate dynamic bond funds over fixed maturity strategies, given their flexibility to adjust to shifting yield curves and liquidity conditions. The key is to avoid layering multiple risks in debt portfolios in such volatile times. Anchoring allocations in G-secs and high-quality AAA-rated PSU papers ensures accrual gains without stretching into lower-rated credits, which could prove costly in a risk-off environment. The emphasis now should be on resilience and credit quality, not chasing incremental yield.

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