Debt mutual fund managers react to RBI policy

The Reserve Bank of India maintained a status quo on policy rates in today's MPC meeting. The banking regulator retained repo rate at 6.00 per cent and the reverse repo rate at 5.75 per cent. The projected CPI inflation for 2018-19 has been revised to 4.7-5.1 per cent in H1 2018-19 and 4.4 per cent in H2. Debt mutual fund managers reacted to the RBI policy decision in a positive way. Here's what some debt fund managers said:

Bekxy Kuriakose, Head – Fixed Income, Principal Mutual Fund
As was widely expected by market, RBI kept key rates on hold and maintained their neutral stance with a vote of 5-1 in favour of the decision.


The lowering of inflation forecast for H1 2018-19 (4.7 to 5.1% range) and H2 (4.4%) is positive for the markets and should aid in rally in gilt and bond prices. However, it is pertinent to note that while RBI has lowered their inflation forecasts, they still continue to sound cautious on various fronts which pose upside risks to inflation- crude oil prices, fiscal deficit slippage risks, staggered impact of HRA increases, reversal in food prices, likely increases in MSP, and slippage in States fiscal deficit as well. Also, it is important to note that RBI’s household survey as well as Industrial outlook survey show that firms and households expect prices to move up.

Given the ample banking system liquidity and recent measures by govt and RBI on G sec borrowing program, bond prices should remain supported. We expect money market rates to remain benign.

Pankaj Pathak - Fund Manager, Fixed Income, Quantum AMC

The RBI by lowering its inflation estimate for FY 19 has signaled a shift in its monetary policy outlook for the rest of the year. In the last 4 months, the RBI was seen to be hawkish and worried on the inflation trajectory. But its language in the accompanying statement and during the press conference suggests to us that the RBI is not unduly worried about the oil prices and MSP increases.

Market expectations of any rate hikes will be dialed back post this policy and hence bond yields will remain supported on the back of already announced reduction in bond supply in H1 Fy 19.

We remain a bit surprised on the flip-flop of the RBI on its overall inflation projections and specifically its treatment of HRA allowance for its inflation projections and do have a feeling that the ‘dovishness/softness’ in its statements could well have been brought about by the need to manage bond yields and maintain the positive sentiment in the bond market.

Avnish Jain, Head – Fixed Income, Canara Robeco Mutual Fund

“The First Bi-Monthly Policy of RBI for FY2019 was as per expectations with RBI keeping repo rate unchanged at 6% whilst maintain the stance at “neutral”. The policy language was softer than the previous policy with RBI acknowledging that inflation has been lower than RBI estimates and further reduced inflation expectation for 1HFY2019 to 4.7%-5.1% (from previous 5.1%-5.6%) and 4.4% in 2HFY2019. The MPC continued to highlight risks from higher oil prices, HRA increase by States, higher MSPs and possible fiscal slippage for Centre and States and noted that risks were tilted to the upside. On growth the MPC was positive and projected GDP for FY2019 @7.4%. Overall the tone of policy was dovish, with 5 member voting for a pause and 1 member voting for a 25bps rate hike.”