RBI cuts repo rate: A shift in monetary policy stance, Peerless MF says

India Infoline News Service | Mumbai | January 15, 2015 17:23 IST

We do not see a compressed rate cut cycle as happened in 2009, but spread out over a 1-3 year time frame, Peerless Mutual Fund says

Ramesh Rachuri, Head–Fixed Income, Peerless Mutual Fund, said, “The RBI cut the repo rate by 25 basis points early morning on 15th March 2015. What is significant is that RBI has communicated that this is a shift in monetary policy stance, and that subsequent policy actions will be data dependent, and consistent with this stance. In other words, RBI has made an official shift in stance, and will only cut interest rates going forward, or hold interest rates, depending on disinflationary trends.”
The market responded by rallying 11-12 basis in the Gsec 10 year security, 5 basis point in the 5 year AAA corporate bond segment, and upto 10 basis points in the 3 month CD segment. This will result in substantial marked to market gains for investors across the duration curve of funds, but especially in the higher duration funds.  However, we do not see a compressed rate cut cycle as happened in 2009, but spread out over a 1-3 year time frame. In this scenario, investor flows would increase in funds like the Peerless Ultra Short Term Fund, the Peerless Short Term Fund, and the Peerless Flexible Income Fund. 
 

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