9 Dec 2022
In its latest policy meeting this week, the Reserve Bank of India raised repo rates by 35 basis points. *
The rate has been raised for the fifth time in a row now, and is currently at 6.25%. *
“...the MPC is of the view that, further calibrated monetary policy action is warranted to keep inflation expectations anchored, break the core inflation persistence and contain second round effects, so as to strengthen medium-term growth prospects,” the central bank said in its statement.
The RBI has raised interest rates by 225 basis points since the rate hike cycle began this year. In the same period, overnight rates have moved up by about 300 basis points, said Abhishek Bisen, fund manager for debt at Kotak Mahindra Mutual Fund.
“Market participants who were expecting the RBI’s stance to turn neutral were disappointed, and this has resulted in a marginal uptick in bond yields,” he said, while discussing the outlook for December.
The RBI has revised the GDP forecast for 2022-23 (Apr-Mar) to 6.8% from 7.0% earlier, while retaining the inflation target for the same period at 6.7%.
Globally, the gap between inflation and interest rates seems to be high in the US, which could lead to the US Federal Reserve further raising rates to up to 4.75-5.00%, Bisen said.
In India, oil prices easing can offer comfort to the RBI as it will help in bringing down inflation, but the Indian rupee remaining under pressure is likely to keep the Indian central bank on its toes.
Investors can consider increasing the duration of their investment portfolio and look at actively managed duration funds and target maturity funds, Bisen said.
* Source: rbi.org.in, data as on Dec 7, 2022
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