No ‘Rate Hike’ as a Positive Surprise – What lies ahead

Posted On Monday, Apr 10, 2023

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At the first RBI’s bi-monthly monetary policy committee (MPC) meeting of the financial year which concluded on April 06, 2023, a ‘no rate hike’ or pause was announced after 6 consecutive interest rate hikes since May 2022. This came as a positive surprise as the hawkish tone in the February policy statement and surprise jump in Inflation in the last month had fuelled an expectation of a rate hike in this policy. The governor made repeated reference to the potential impact of the effective 290 basis points of rate increases in the last 1 year. They also revised down its inflation forecast for FY24. This indicates that the RBI has probably reached its destination in terms of the level of Repo Rate and will hike rate only if inflation path moves up significantly. The pause also seems to be driven by global financial stability issues.



Some of the Key announcements of this policy meeting


• The policy repo rate left unchanged at 6.5%. Consequently, the SDF (Standing Deposit Facility) rate remained unchanged at 6.25% and MSF (Marginal Standing Facility) rate at 6.75%

• The policy stance retained as ‘withdrawal of accommodation’ to ensure that inflation progressively aligns with the target, while supporting growth.

• The GDP Growth estimate maintained at 6.5% YoY in FY24.

• The CPI inflation estimate for FY24 revised down from 5.3% to 5.2%.



Impact on Bond Markets


The governor made special efforts to sound hawkish by singling out this rate pause as onetime deviation from its broader monetary policy path. Despite the use of Phrases like ‘for this meeting only’ and ‘a pause not pivot’, the bond market seems to have read it differently. Bond yields fell by around 10 basis points post policy announcement with the 10 year government bond yield falling below 7.2%.


Going ahead, the bond market will price for extended rate pause with terminal repo rate at 6.5%. This should open up space for Government bond yields to go down. We would expect the 10-year government bonds to trade between 7.00%-7.40%.


At current yield of 7.2%, government bonds are now offering positive real yield of about 200 basis points based on 4 quarter ahead inflation estimate of 5.2%.


Also, with the rate hiking cycle nearing end and inflation trending down, probability of capital gains in long term bonds has increased. if you have over 2-3 years investment horizon you should allocate to Quantum Dynamic Bond Fund which tends to benefit in this kind of interest rate environment. If you are looking for a shorter holding period and building your emergency corpus, you can stick to Quantum Liquid Fund with good credit quality portfolio.



Diversification is the key


As always, it’s important to diversify your portfolio to minimize impact of any negative shocks in the markets. Explore our handy Asset Allocation Calculator to conveniently balance your portfolio across equity, debt and gold asset classes using our tried and tested 12|20:80 Asset Allocation Strategy. This tool offers a one-stop investment solution allowing you to easily manage and personalize your allocation depending on your risk appetite and investment tenure.








Product Labeling

Name of the SchemeThis product is suitable for investors who are seeking*Riskometer of scheme

Quantum Liquid Fund

An Open-ended Liquid Scheme. A relatively low interest rate risk and relatively low credit risk.

• Income over the short term

• Investments in debt / money market instruments


Investors understand that their principal will be at Low Risk

Quantum Dynamic Bond Fund

An Open-ended Dynamic Debt Scheme Investing Across Duration. A relatively high interest rate risk and relatively low credit risk.

• Regular income over short to medium term and capital appreciation

• Investment in Debt / Money Market Instruments / Government Securities


Investors understand that their principal will be at Low to Moderate Risk

*Investors should consult their financial advisors if in doubt about whether the product is suitable for them.

Potential Risk Class Matrix – Quantum Liquid Fund
Credit Risk →Relatively LowModerate (Class B)Relatively High (Class C)
Interest Rate Risk↓
Relatively Low (Class I)A-I  
Moderate (Class II)   
Relatively High (Class III)   
Potential Risk Class Matrix – Quantum Dynamic Bond Fund
Credit Risk →Relatively LowModerate (Class B)Relatively High (Class C)
Interest Rate Risk↓
Relatively Low (Class I)   
Moderate (Class II)   
Relatively High (Class III)A-III  


Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.


Mutual fund investments are subject to market risks read all scheme related documents carefully.

Above article is authored by Quantum.

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