RBI will hike rates in its meeting this week following Fed guidance and maintain a tight policy stance.
In the wake of global rate hikes, RBI is expected to hike policy rates by at least 25 bps in its next policy meeting with a tightening monetary policy stance to control inflation and to curb rupee depreciation. Federal Reserve in its latest FOMC hiked rates to 25 basis points taking the benchmark rate to 4.75%. The move was expected, and the statement was relatively hawkish.
Government borrowing including states will still he high at around Rs 25 trillion
For FY4, gross market borrowing is expected to stand at Rs 15.45 trillion while net market borrowing is estimated at Rs 12.3 trillion for FY24. Including SDL borrowing, gross market borrowing is likely to stand at Rs 25 trillion in the next fiscal year.
Growth and inflation are still uncertain given global risks
IMF projects global GDP to slow from 6.1% in 2021 to 3.2% in 2022 and 2.7% in 2023.
India expects growth to slow in the coming year. The Indian government’s growth forecast for the coming year to 6% – 6.8% in the 2023/24 fiscal year, down from the 7% growth forecast for the current year, ending March 31. The slowdown comes as a global economic slowdown is likely to hurt exports.
INR to remain at lower levels on uncertainty over capital flows
In 2022, FII has pulled out Rs 2.75 trillion. Going ahead, in the view of global economic uncertainty and rate hikes by global central banks, capital flow is likely to remain unsteady. Consequently, rupee may remain at lower level.
Government bonds, SDL and OIS yield movements
The new 10-year bond auction cut-off stood at 7.26%. 10-year benchmark 7.26% 2032 yield declined by 11 bps to 7.28% while 6.54% 2032 yield decreased by 12 bps to 7.29%. The 5-year benchmark bond, 7.38% 2027 yield decreased by 9 bps to 7.11%. 3-year benchmark 5.22% 2025 yield decreased by 1 bp to 6.99%. Long-term paper, 7.40% 2062 yield decreased by 8 bps to 7.37%.
The spread of 10-year bond over 5-year bond decreased to 17 bps from 19 bps as compared to the previous week. The 15-year benchmark over 10-year benchmark spread stood unchanged at 7 bps while the 30-year benchmark over 10-year benchmark spread increased to 9 bps from 7 bps on a weekly basis.
On a weekly basis, 1-year OIS yield declined by 10 bps to 6.61% while the 5-year OIS yield decreased by 7 bps to 6.15%.
We would love to hear back from you. Please Click here to share your valuable feedback,