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Informist, Wednesday, Jun. 3, 2026

 

By J. Navya Sruthi and Anand JC

 

MUMBAI – The Reserve Bank of India should give guidance on the terminal policy rate as it does with data on CPI inflation and growth during the Monetary Policy Committee meeting, Dhawal Dalal, president and chief investment officer of fixed income at Edelweiss Mutual Fund, said. "Just like the RBI gives guidance for inflation, GDP, a similar guidance to the market in terms of terminal policy rates would be highly appreciated," Dalal told Informist.

 

Talking about the upcoming decision of the Monetary Policy Committee on Friday, Dalal said the RBI is unlikely to change the repo rate or stance. The RBI's current repo rate stands at 5.25% with a neutral stance. 

 

However, he believes a repo rate hike is ideal in the current scenario. "One year OIS is currently at 6.10%. It hints that repo rate should be closer to 6.00% or higher perhaps between 6.00-6.50% range, in our view," Dalal said.

 

"Fact of the matter is that India's current growth-inflation dynamic looks comfortable," Dalal said. "However, the trajectory of India's current account deficit, balance of payment, FPI flows, FX reserves, which look worrisome to us." 

 

Talking about flows from foreign portfolio investors into the debt market, Dalal said the government should reduce the withholding tax from 20% or remove it completely. "Reduction of withholding tax on FPI investment in bonds along with other measures will likely help augment dollar inflows in the medium term, in our view."

He explained that with around 7% return on the 10-year government security and the current withholding tax on FPI investment, which is at 20%, the investor will get a net return of 5.60%. Given the current rupee depreciation, it will leave FPIs with no incentive, he said.

 

The central bank, he said, has gradually improved its communication, but there is always scope to improve communication with the media other than at post-policy press meetings, which it usually does.  End

 

Edited by Avishek Dutta

 

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