RBI holds policy rates. Where should debt mutual fund investors invest?

The RBI monetary policy committee (MPC) has kept the policy rate unchanged at 4%. The MPC also decided to continue with an accommodative stance. The reverse repo rate remained unchanged at 3.35%. The debt mutual fund managers say that the policy is in line with broader market expectations. Here's what the fund managers said about the policy:

Pankaj Pathak, Fund Manager- fixed income, Quantum Mutual Fund said that, "Status quo in monetary policy is largely in line with expectation. Given that the RBI has already exhausted the monetary policy options to support growth any further reduction in policy rates is unlikely. We believe the next move in policy rates will be an increase though it may not happen in the current calendar year."

Pathak added that, "RBI will have to continue its support to the bond markets to keep overall interest rates low for as long as possible. Continuation of GSAP program should bode well for the bond markets in near term. However, potential change in the monetary policy direction in second half remains a risk. We expect bond yields to move higher gradually over medium term."


Kumaresh Ramakrishnan, head-fixed income, PGIM India Mutual Fund says that the second bi monthly monetary policy for fiscal 2022 refrained from issuing any “time-based guidance” on liquidity normalisation. "The policy just reiterating its “accommodative stance” on rates and its resolve to maintain “surplus liquidity” to help the economy return to a durable growth path," said Ramakrishnan.

He added that, "Based on the success of G-sec Acquisition Program (G-SAP) 1.0 (INR 1.0 trillion) and in continuation with its narrative of anchoring long end rates at competitive levels, RBI announced G-SAP 2.0 for INR 1.2 trillion for the July – August quarter. The absence of a time based guidance will help the shorter end of the yield curve to stay largely unchanged for the short to medium term. We would continue focusing on the Banking & PSU, Corporate bond and Dynamic Bond fund categories, post today’s policy," said Ramakrishnan.