8 Oct 2022
The Monetary Policy Committee of the Reserve Bank of India raised interest rates by 50 basis points last month, taking it to 5.90%.* This was the fourth consecutive rate hike by the Indian central bank.
This move has been in line with that of central banks globally, including the US Federal Reserve, which have been raising rates to rein in inflation.
The markets are currently discounting a rate of 4.25-4.50% in the US, said Abhishek Bisen, a fund manager for debt at Kotak Mahindra Mutual Fund, while discussing the outlook for October.
And consequently, it would be fair to assume that the repo rate in India could rise to 6.25-6.50% by March 2023, he said.
There could be a long pause on interest rates after that, he said.
Given that the RBI continues to focus on withdrawal of accommodation, liquidity in the banking system is expected to remain relatively tight.
A flattening yield curve is likely to remain the theme as the short end of the yield curve is rising more than that of the long end of the curve, Bisen said, and in such a situation, floating rate bonds are among the best asset class to own.
Investors must now consider moving from liquid funds to those in short and short to medium category, Bisen said.
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