The Reserve Bank of India (RBI) in its monetary policy kept the key rates unchanged even as fund managers were expecting a hike in interest rates. Officials in the mutual fund industry say that with the status-quo from the RBI, the bond yields are likely to come down which will improve the returns from debt funds.
Thursday's status-quo sets the RBI apart from most central banks in the world which are not only normalising liquidity but raising interest rates to tame inflation. While most central banks treated inflation as transitory and then hurried to change their tone to a more hawkish tilt, the RBI is waiting patiently for the cyclical nature of inflation to play out.
“Belying expectations of bond market participants on taking the first step towards policy normalisation, the RBI MPC surprised market participants and unanimously voted to maintain the status quo on all policy rates. This probably means no rate hike in the near-term, in our view,” said Dhawal Dalal-CIO fixed income at Edelweiss MF.
Fund managers are expecting the yields of government securities (G-Sec) to come down in the days to come. In the last few days, the g-sec yields had seen a sharp rise as the government increased the fiscal deficit target and borrowing target for next year.
On Thursday, the 10-year G-Sec yields ended the day at 6.73 per cent against Wednesday's closing of 6.81 per cent.
“The bond markets will rally for some time and the 10-year yield could come down to 6.6 per cent levels. The gross supply of G-secs next year is projected to be quite high. Bond markets are expected to be in a range around 6.5 per cent. The yields at the shorter end of the curve can remain subdued for a few months boosting returns for debt MF investors,” Sandeep Bagla, CEO at TRUST MF.
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