Monetary policy Committee (MPC) of Reserve Bank of India (RBI) has announced a 50-basis-point hike in repo rates. By the time the Governor Shaktikanta Das completed his address on August 5, the 10-year benchmark bond yield jumped to 7.25 percent compared to 7.15 percent on the previous day. Though there was an expectation that the RBI will continue to increase the repo rate, the quantum of rate hike was heavily debated by the economists and markets participants. On this background, let’s see how the fixed income investors should realign their investments.
What to expect going forward?
The MPC has brought the repo rate at 5.4 percent with immediate effect after the 50 basis points hike announced today. After accounting for 90 basis points hike earlier this year, the increase in repo rate stands at 140 basis points. The increase is aimed at controlling inflation.
The market participants expect the inflation cool down as the inputs costs to go down with fall in prices of metals, energy and agri commodities. The fears of recession may act on the inflation control targets of central bankers worldwide and central bankers may go slow on rate hike cycle.