‘50-bp cut in interest rate likely by March 2025’

Positive macros – lower inflation, high forex reserves, and favourable demand-supply dynamics for government bonds - make a strong case for rate cuts from December, says DEVANG SHAH, head of fixed income, Axis Mutual Fund. In an interview with Abhishek Kumar in Mumbai, Shah says this view may not hold true if commodity prices go up sharply. Edited excerpts:

- DEVANG SHAH

What are the key takeaways from the latest policy announcement by the Reserve Bank of India (RBI)?

The change in RBI's stance was likely driven by the favourable outlook on inflation. Though the RBI governor sounded caution on consumer price index (CPI), we believe that CPI trajectory would remain comfortably closer to 4.5 per cent for the rest of the year. In the last 12 months, core CPI has been below 4 per cent and if we exclude the volatile items, especially food and fuel, the CPI trajectory looks comfortable till March 2025. Good monsoon and seasonality could lead to a fall in food inflation next month onwards. This, in turn, will lead to a fall in headline CPI back to 4.5 per cent in the last quarter widen a bit from the current 35 bps on higher Q4 supply.

Has the inclusion in FTSE Russell index added to the attractiveness of sovereign bonds?