Fed delivers 75 bps rate hike on expected lines

Mumbai, Nov 04 Akhil Mittal, senior fund manager, Tata Mutual Fund, for your use. Federal reserve delivered 75 bps rate hike on expected lines and maintained its position of inflation control as top priority.

"The market was expecting a bit dovish tone from Federal reserve, but federal reserve did not provide any such indication. However, the federal reserve tone was not hawkish either. We now anticipate that federal reserve might not deliver 75 bps moves going ahead, however, pivot might shift to 5 per cent per cent instead of 4.5-5 per cent", says Akhil Mittal, senior fund manager, Tata Mutual Fund.

This would largely keep global central banks on continued tightening path, and we expect same in case of India also. We believe RBI will hike repo rate with 6.75% as fulcrum terminal rate. Given the dollar strength and our current account deficit situation, we do not think

RBI would lower its guard or pause earlier as that would create further speculative risks on INR. Given that RBI has missed the inflation target zone for 3 consecutive quarters and law requiring RBI to provide explanation to the government, we think RBI will not keep even tighter vigil and hence tighten policy to levels where it is sure of meeting inflation targets and not pause prematurely on hope. With this view in mind, we see yields hardening by 15-25 bps over period of next couple of months. The yield curve is expected to remain flattish in the move, he said.

This would mean some possible MTM impact on investors in near term, however it will also provide better accruals to existing and new investors once the yield move up, he added.