Inflation and interest rates - Debt perspective

7 Jul 2022

The Reserve Bank of India hiked interest rates by 50 basis points in its policy meeting in June, following up on its earlier policy action in May when it had raised the repo rate by 40 basis points in an off-cycle hike.

With these two hikes, the repo rate is now at 4.90%^.

The Indian central bank has also said that liquidity will be withdrawn over a multi-year period, which has allied fears of back-to-back hikes in the cash reserve ratio.

These rate hikes by the RBI were in order to control inflation, which has risen to multi-year highs recently.

Inflation in May 2022 was 7.10% and that in April was 7.90%*.

“This will ensure the 1st quarter inflation is in line with RBI forecast…,” said Deepak Agrawal, fund manager for debt at Kotak Mahindra Mutual Fund, while discussing the outlook for July.

According to Dr Michael Patra of RBI, the objective of the monetary policy should be to take the repo rate to a level which is higher than where inflation is expected to be after four quarters.

The RBI expects inflation to be at 5.8% in Jan-Mar 2023.

This commentary suggests that the terminal rate in India could be closer to 6%, Agrawal said.

He said investors could consider funds based on their time horizon, and given the steep rise in rates over three months, they could have a horizon of over one year.

 

Debt Market Outlook by Mr. Deepak Agrawal


^Source: RBI. Data as of 8th June 2022.

*Source: RBI

This article is for information purposes only. The information provided herein is derived from public sources, believed to be from reliable sources. However, no representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information, opinions or conclusions expressed herein. Views expressed herein involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied herein. Kotak Mahindra Mutual Fund/ Kotak AMC is not indicating or guaranteeing returns on any investments. Past performance may or may not be sustained in future. Readers should seek professional advice before making any investment-related decisions and alone shall be responsible for any decision taken.

Popular Articles

image

Interest rates, a pause and more #Debt

image

Building a retirement corpus - Five things you need to know

image

Conservative or aggressive? We have several multi-asset allocation products for you to consider!

image

Interest rates, a pause and more #Debt

image

Building a retirement corpus - Five things you need to know

© Kotak Mutual Fund.2022
Mutual fund investments are subject to market risks, read all scheme related documents carefully.
© Kotak Mutual Fund.2022
Mutual fund investments are subject to market risks, read all scheme related documents carefully.