The Reserve Bank of India’s decision to cut the repo rate by 25 basis points to 6.25 per cent will have a positive impact on the bond market, feel experts. “We reiterate our positive outlook for the bond markets with a medium- to long-term investment perspective,” Killol Pandya, Head Fixed Income, Peerless Funds Management Co. said. Pandya said that the inflation trends in the coming months would hold the key to future RBI moves. “Overall, the policy was largely balanced in its nature. RBI has cut Repo rate but has also sounded cautious about inflation in the coming months. The policy is largely positive for domestic bond markets in the near term. However, we shall have to watch the incoming data prints regarding inflation to estimate how RBI nuances its policy in the coming time,” Pandya said.
Sunil Sinha, Principal Economist, India Ratings & Research, feels that there is indiation by the Monetary Policy Committee (MPC) for an upward inflationary tilt. “Although the newly constituted Monetary Policy Committee (MPC) still views risk to be tilted towards upside with respect to headline CPI inflation reaching 5 per cent by March 2017, it chose to cut the policy rate. That the risk is tilted towards upside, is also captured by the RBI’s inflationary expectation survey of Septemby theber 2016 whereby households have raised their inflationary,” Sinha said.
Murthy Nagarajan, Head-Fixed Income ,Quantum AMC, expects the RBI to manage liquidity in a manner that woujld leave more room for rate cuts. “The RBI cut the repo rate and more importantly all six members of the newly formed MPC voted towards the 25 bps cut. This shows major consensus on the decision which should be well taken by the markets. But there is little else in the document that indicates on the future trajectory of inflation and rates and it is thus difficult to guess RBIs next move. We expect it to continue with proactive liquidity management which should enable further cut in lending rates and lower EMIs in the near future.”