After demonetisation, many fixed-income fund managers were of the opinion that the Reserve Bank of India (RBI) would cut the repo rate by another 50 basis points (bps) by the first quarter of the next financial year. Consequently, many financial advisors had turned bullish and were advising their clients to increase exposure to longer-duration debt funds to benefit from the expected decline in interest rates. But with the RBI choosing to pause, leading to a sharp spike in bond by 20 basis points, retail investors need to re-evaluate their debt fund strategy.
Experts say that the RBI chose to hold the repo rate due to its discomfort with inflation. "While headline inflation has come down, core inflation remains at an elevated level. The central bank also fears that once the base effect wears off, inflation could start inching up again," says Akhil Mittal, senior fund manager, Tata Mutual Fund.
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First Published: Thu, December 08 2016. 17:58 IST