7 Nov 2022
The US Federal Reserve met earlier this month, and raised interest rates by 75 basis points to 3.75-4.00%. It has also signalled that it might dial down the pace of rate hikes going ahead, maybe even in December.
While the Monetary Policy Committee of the Reserve Bank of India also met earlier this month, it was to discuss the breach of the CPI inflation target above 6% for three consecutive quarters.
The MPC will meet in December next. *
“We expect a minimum 35bps repo rate hike in the Dec policy, under our base case scenario,” said Deepak Agrawal, the Chief Investment Officer - Fixed Income at Kotak Mahindra Mutual Fund.
The repo rate is currently at 5.90%.*
Agrawal also said that there is a non-trivial possibility that interest rates could be hiked by 50 basis points if India’s CPI inflation surprises on the upside in October and November.
Inflation in September came in at 7.4%.
“It seems to have peaked and is likely to gradually trend lower and is likely to come within RBI’s inflation targeted range of 2-6% latest by Q1 FY 24 (Apr-Jun),” he said, while discussing the outlook for November.
Agrawal expects the terminal repo rate to be closer to 6.50%.
We prefer the two-six-year segment of the G-Sec curve, he said.
“We may be looking to gradually increase the duration of our products from here till March 2023 as we approach the terminal rate in this hiking cycle,” he said.
Investors with a horizon of 18 months to 24 months can look to gradually increase the duration of their investment portfolio, and can consider investing in targeted maturity funds or actively managed duration funds or dynamic funds, he said.
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