Bandhan MF CIO Calls for RBI Rate Hike Cycle as Inflation Risks Rise

The Quick Take

• Suyash Choudhary, CIO-Fixed Income at Bandhan Mutual Fund, says the RBI should start a rate hike cycle to maintain its inflation-fighting credibility
• Average inflation forecasts are likely to move higher, and rate hikes may not immediately solve the problem given supply-side pressures
• The call runs counter to current market expectations for RBI rate cuts, marking a notable contrarian view from an institutional fixed income manager

Suyash Choudhary, CIO-Fixed Income at Bandhan Mutual Fund, has made a notable contrarian call: the Reserve Bank of India should begin a rate hike cycle rather than cutting rates, as inflation risks are rising. Choudhary's argument centres on the RBI's credibility as an inflation-focused central bank — if average inflation forecasts are moving higher and the RBI remains on hold or cuts, it risks losing its anchoring credibility with markets and businesses.

The inflation pressure Choudhary identifies is likely linked to Iran-war-driven oil price pass-through into Indian petrol, diesel, and LPG prices, compounding existing food inflation from climate-related agricultural disruptions. For Indian fixed income markets — including government securities, corporate bonds, and money market instruments — a rate hike signal would invert the current rate-cut-driven rally, sharply repricing short-duration positions. Indian bank NIMs (net interest margins) would benefit from rate hikes while retail borrowers face higher EMIs.

Watch for the RBI's June Monetary Policy Committee (MPC) meeting and the tone of the post-meeting press conference by Governor Sanjay Malhotra. The macro variable: India's May CPI print — if it comes in above 5.5%, Choudhary's hike case gains urgency; below 4.5%, the RBI's current hold or easing stance is validated.

Synthesized from 1 source.