‘Benchmark yield seen easing to 6.15-6.20% within three months’

The RBI’s dovish stance, potential trade deal with the US and easing fiscal worries will help soften government bond yields, believes Sandeep Yadav, head — fixed income, DSP Mutual Fund.

- @ SANDEEP YADAV, HEAD - FIXED INCOME, DSP MUTUAL FUND

He tells Christina Titus that gilt fund is a suitable option for investors to take advantage of expected lower yields. Excerpts:

How do you see the interest rate trajectory going ahead?

We saw two out of six members voted for a stance change in the previous policy, clearly indicating a shift towards dovishness. However, the shift does not seem to warrant an immediate rate cut. If India signs a trade deal and the pressure on the rupee eases, I would expect a decent probability of a rate cut in December. We call fora 25-bps cut in February. For the RBI to deliver a 50-bps rate cut, there has to be a significantly bigger shock on growth.

How will growth-inflation dynamics pan out? What will drive the rate cut?