RBI maintains status quo on rates. What should be your debt-fund strategy?

The yield on India 10-year bond remained largely unchanged at 7.08 post policy announcement.

The Reserve Bank of India’s monetary policy committee (MPC), as expected, held the repo rate unchanged at 6.5 percent on February 8.

The yields on India's 10-year bond remained largely unchanged at 7.08 post-policy announcement.

For the latest on the RBI policy meet 2024, click here

RBI’s easy-going, accommodative policy laid no jolts on Dalal Street. The rates remained unchanged for the sixth consecutive time and there were no further surprises.

"With a similar stance as the last time, we feel the interest rates have peaked and there are higher chances that this accommodative stance would shift in the latter half of the year, by when the interest rate cuts would begin. Despite the global headwinds, growth in the Indian economy has remained resilient above 7 percent and with this balanced fiscal status, we expect huge inflows into India in the coming months," said Umeshkumar Mehta, Chief Investment Officer, SAMCO Mutual Fund.

Also read | RBI Policy Impact on Home Loans: EMIs to stay unchanged as central bank holds repo rate at 6.5%

RBI in its monetary policy kept the Consumer Price Index (CPI) Inflation target for next year at 4.5 percent. The potential GDP growth seems to be above 7 percent as RBI has projected growth of 7 percent even when global growth is slowing.

"The debt market has reacted slightly negatively due to no statement on easing liquidity, but the long-term positive lies in their commitment to bring CPI inflation to the 4 percent level. We should see 10-year yields going down to 7 percent levels in the coming days as monthly CPI inflation cools down below 5 percent in following months," said Murthy Nagarajan, Head-fixed income, Tata Asset Management.

With the government’s focus on fiscal prudence and the RBI maintaining status quo, experts said this is a good time to go for long-duration bond funds.

Investors can capture this opportunity with dynamic bond funds, which are invested in long-term bonds.

“The post-policy statement and comments from the central bank indicate that a meaningful softening of policy stance and/or policy rate is perhaps a couple of meetings away, but we draw comfort from the commentaries related to liquidity viz. the RBI’s objective to keep the overnight rate around the repo rate and the central bank’s commitment to remain nimble and flexible on liquidity management. We remain overweight on duration and particularly the long end,” said Vikrant Mehta, Head - Fixed Income, ITI Mutual Fund.

Moneycontrol has been advising readers to start investing in debt funds for a few months now.

Bond yields had already eased in last few days in the prelude to policy announcement and after a very brief spell of disappointment, held on to recent gains with yields largely unchanged.

"Money market rates had inched up due to tight liquidity recently and again largely remained unchanged, even though there is slight disappointment on no specific measure in the policy on liquidity front. Bond yields are likely to remain range-bound with positive bias as the emerging trend is likely to remain supportive of easier policy environment in months ahead. Some profit booking may take place but, trend should remain positive," said  Mahendra Jajoo, CIO – Fixed Income, Mirae Asset Investment Managers (India).

The interest rates on various fixed-income instruments are attractive at this moment. If the inflation goes down as envisaged, then the real rate of return becomes even more attractive.

The real rate of return is computed by deducting the rate of inflation from the rate of interest payable on the bond.

There could be a debate over the extent of interest rate cuts by the US Federal Reserve and the RBI or when the first rate cut will happen but, overall, the global environment is improving. In India, the macro environment continues to be strong.