Invest in Credit Risk Mutual Fund or not?
What are Credit Risk Funds? Why investors stay away from this investment? How do these funds work? How much is the risk in this investment?
In the coming months, domestic inflation trends are likely to raise anxiety levels of the Reserve Bank of India (RBI) and the monetary policy committee (MPC). Driven by several global and domestic factors, inflation may remain elevated.
Consumer price index (CPI) inflation has increased to 6.30% on yearly basis in May as compared to 4.23% in April. This 200 bps increase on yearly terms and 100 bps increase in monthly terms is a matter of concern and even small items are showing disproportionately larger increases.
Rising food and commodity prices, as well as localised lockdowns, have led to a sharp increase in the numbers.
According to the SBI report, robust recovery in some of the advanced countries is likely to exert upward pressure on international commodity prices, including oil. The latter being an intermediate good in leading emerging market economies (EMEs), would generate cost-push inflation.
Covid-19 second wave impact
The ravages after the second wave of the pandemic and location-specific lockdowns in major Indian states have further dislocated supply chains even in rural areas.
Cumulatively, this could significantly ratchet up core inflation. The SBI report said once the inflation goes up, it would be impossible for the MPC to look through inflation pressures and remain supportive of growth, given its primary mandate of ensuring price stability.
Supply chain woes
Soumya Kanti Ghosh, the group chief economic adviser at SBI, said, “Repairing the supply chain remains the top priority on which the RBI has little control– the Government of India needs to step in a big way. If the RBI has to ultimately increase interest rates or change its stance to combat inflation, it may impact any incipient signs of recovery. On the other hand, being a mute spectator can seriously impair RBI’s credibility in fighting inflation.”
Ghosh said, “We expect a status-quo in August. We believe RBI would still try to find a marriage of convenience of regulatory and developmental measures and monetary policy in August policy. The die has been cast, but the RBI can still hold out with a firm message of ratcheting up inflationary pressures in the August policy statement. On a separate note, India must meaningfully vaccinate a large segment of the rural population so that it can effectively beat the new mutant strain in the town.”