Anurag Mittal, Head of Fixed Income at UTI AMC
“Without changing headline policy rates, today’s RBI’s policy was an effort to build a buffer in case of any unanticipated potential stress given the unprecedented global financial market volatility. The policy was decidedly hawkish, indicating a long pause & reflected RBI’s discomfort with recurring above target inflation & surplus liquidity. While there may be near term bond market volatility, the strong focus on inflation targeting bodes well from a macro stability perspective & is positive for patient investors.”Mahendra Jajoo, CIO, fixed income, Mirae Asset Investment Managers
The MPC retained the prevailing key policy rates and only marginally tweaked the inflation projections, the guidance turned out to be much more hawkish than expected. Emphasis on 4% being inflation target than 2-6% and the possible need for OMO sales point to the underlying concerns on deteriorating global environment. The positive flip side though is that as of now , the past policy actions seems to have eased core inflation and a harsh scenario may materialize only in case the global macro environment continues to turn adverse. In view of above, a slight uptick in longer term rates can be expected with the curve steepening somewhat as short term rates have already inched up in last few weeks
Amit Somani, Senior Fund Manager – Fixed Income, Tata Asset Management
RBI will maintain tighter liquidity conditions to address higher Inflation risks. Short-term rates likely to remain elevated in near term factoring in tighter liquidity conditions going forward.
RBI formally unleashing Bond Open Market Operations (OMO) sale tool in policy to manage liquidity would weigh on yields in near term. This tool, however, may be used only judiciously to deal with large inflows causing banking system liquidity to stay in surplus zone.
RBI would target Inflation rate of 4% and not 2%-6% range, again signals the policy rates to remain higher for longer until Inflation is projected to come below 4%. RBI’s sharp focus on bringing down inflation is positive for markets in the medium-to-long term.
Puneet Pal, Head-Fixed Income, PGIM India Mutual Fund
The MPC policy today was as hawkish as it could get even as the MPC kept the policy rate unchanged. Flagging Inflation as still the “Major Risk,” the RBI governor emphatically reiterated that the Inflation target is 4% and not 2% to 6%. This along with the announcement that RBI will be nimble in managing liquidity by conducting OMO sales has spoked the bond markets and the benchmark 10yr yield has risen by 14bps to 7.35% We expect the yield curve to steepen going forward.
Nimesh Chandan, CIO, Bajaj Finserv AMC
“In recent weeks on back of strong macroeconomic data and Fed commentary, market has come to terms with the fact that high rates in US can remain for longer than anticipated earlier. This has led to unusual move of bear steepening in rate curves even when rate hike cycle has peaked. This sharp rise in longer term US real yields has led some term premia normalisation from severe inversions. Headwinds for EM yields have also aggravated somewhat with a strong USD, Crude price levels and the Bank of Japan’s yield curve control . MPC kept rates unchanged in line with consensus expectations. India continues to show good macroeconomic stability. Economic growth continues to remain robust. Core inflation has softened but food prices have had some impact on headline inflation. This we believe can be a short-term issue, however, an important risk to monitor. RBI Governor indicated that they are keeping a close eye on the liquidity in the system. RBI is likely to conduct OMOs as and when needed to balance any excess. While yields have moved up sharply in global markets, Indian rates and currency have shown some uptick for reasons mentioned above.”
