Debt fund managers are keeping their duration bets unchanged as the Reserve Bank of India prepares for its monetary policy meeting from 3 to 5 August. They anticipate the RBI will leave interest rates unchanged while watching inflation, liquidity and foreign currency inflows closely.
The main reason for a pause is the easing of inflation risks, better monsoon conditions and the liquidity measures announced earlier. Portfolio positioning differs across fund houses, but all agree on a neutral stance for now.
Basant Bafna, Head of Fixed Income at Mirae Asset Mutual Fund, said the RBI’s focus has shifted to supporting growth because inflation remains inside the 4‑6 percent band. He added that the recent rise in crude prices and El Niño are exogenous shocks that should not be treated as core inflation.
Bafna expects the RBI’s FY27 inflation projection to be trimmed by about 15 basis points, while growth forecasts and the policy stance are likely to stay the same.
Axis Mutual Fund’s Devang Shah also sees no rate change. He believes the RBI will keep a neutral macro view, hold growth and inflation projections, and wait for clearer data before acting.
Shah predicts a shallow rate‑hike cycle may start in the second half of FY27, with two hikes by March 2027, but he assigns less than a 25 % chance of any move at the August meeting.
Tejas Soman, Head of Fixed Income at PPFAS Mutual Fund, agrees that the RBI will not change rates or policy stance. He says the bank will remain in a wait‑and‑watch mode due to ongoing uncertainty.
On liquidity, managers expect the RBI to rely on measures announced previously rather than new ones. Bafna notes excess liquidity will likely be managed through variable‑rate reverse repo (VRRR) operations.
Shah expects liquidity to stay surplus until December, supported by foreign currency inflows. Soman says the RBI will first assess the impact of FCNR and ECB measures before taking further steps.
Mirae Asset has increased duration across its debt schemes, favouring three‑year corporate bonds because of the steep yield curve between one and three years. The fund house also sees value at the longer end of the government securities curve.
Axis has increased its allocation to corporate bonds but has not yet reduced duration. Corporate bond exposure is higher, while gilt funds run with durations of 8‑9 years compared to over 10 years earlier.
PPFAS continues to focus on the 5‑7 year segment and AAA corporate bonds up to 3‑5 years. The house remains cautious on duration, awaiting clearer fiscal policy signals.
All managers expect foreign currency inflows to support liquidity and the rupee. Bafna predicts FCNR and ECB inflows of $70‑75 billion, while Shah expects $60‑70 billion. Soman sees $65‑75 billion.
In summary, the August policy is expected to be largely uneventful. The RBI’s commentary on liquidity, inflation and external risks will be the main focus rather than any policy action.