Daijiworld Media Network - Mumbai

Mumbai, Dec 5: Debt fund managers are widely expecting the Reserve Bank of India (RBI) to adopt a more dovish stance in its upcoming monetary policy announcement on Friday, December 5, amid a “mixed backdrop” of strong GDP growth, soft inflation and recent rupee depreciation. A recent poll by Moneycontrol points to a likely 25 basis points cut in the repo rate by the Monetary Policy Committee (MPC), even as markets prepare for possible liquidity-support measures.

India’s economy surprised on the upside, posting an 8.2 percent growth in Q2 (July–September), prompting some forecasters to raise full-year real GDP growth expectations to above 7 percent. Meanwhile, inflation remains muted — an outcome of favourable base effects and subdued price pressures — even as the rupee’s weakness and RBI’s dollar sales have tightened liquidity and pushed short-term rates higher.

In this context, bond and debt-fund managers say they are watching closely whether RBI signals, or announces, a fresh round of Open Market Operation (OMO) purchases, which would inject durable liquidity, help ease money market rates and bring down bond yields. According to them, even if the repo rate is not cut, the real impact will depend on the “tone” of the statement — a hawkish-sounding policy, even with a cut, could undermine the benefits.

Portfolio positioning among major fund houses shows caution: some are holding mid-duration portfolios with short-term AAA bonds and state development loans (SDLs), with a tactical long-end allocation as a hedge should liquidity support materialise. Others are using a “barbell” structure — combining short-term securities with select long-term government bonds — to balance risk and potential returns depending on how the RBI acts.

In short, as markets brace for Friday’s policy decision, the consensus among many debt-fund managers is that if the RBI wants to support growth while managing rupee and liquidity pressures, now could be a better time than later — and the central bank would be well advised to strike a dovish, liquidity-supportive tone.