The first RBI monetary policy meeting of the current fiscal year is going to be held on 3rd, 5th & 6th April. Considering the current domestic and international economic scenario, minimum 25 bps of policy rate hike is on cards by RBI MPC. Following factors will be the key factors that will prompt the MPC of the central bank to hike rates.
- Elevated consumer inflation- Despite continuous rate hike, consumer inflation still above upper limit pegged by RBI. During Feb 23, it stood at 6.44% while core inflation was still hovering at 6%. Consequently, the major concern for RBI is to curb inflation in the current scenario which is expected to be reflected in rate hike.
- US Fed rate hike-The U.S. central bank raised interest rates by 25 bps taking the rate from 4.75% to 5%, in line with market expectations. The US Fed Chairman has opined that inflation is still too high and, therefore, interest rates must rise.
- Rupee depreciation- Driven by higher inflation and global rate hikes, Indian rupee has depreciated significantly since 2021. USD to INR exchange rate is hovering above 82 currently.
Government Borrowing- During H1FY24, Government of India will borrow Rs 8880 billion which is 57.48% of total budgeted borrowing for FY24. It can be noted that during H1FY23, GoI had borrowed Rs 8010 billion.
Fiscal Deficit- During Apr-Feb FY23, India's fiscal deficit for the 11 months stood at Rs 14.54 trillion rupees which is equivalent to 83% of annual target.
Government bonds, SDL and OIS yield movements
On a weekly basis, the new 10-year benchmark 7.26% 2033 yield stood flat at 7.31% while 7.26% 2032 yield rose by 1 bp to 7.32%. The 5-year benchmark bond, 7.38% 2027 yield rose by 3 bps to 7.18%. 3-year benchmark 5.63% 2026 yield increased by 5 bps to 7.15%. Long-term paper, 7.40% 2062 yield rose by 2 bps to 7.41%.
The spread of 10-year bond over 5-year bond decreased to 13 bps from 16 bps as compared to the previous week. The 15-year benchmark over 10-year benchmark spread came down to 5 bps from 7 bps while the 30-year benchmark over 10-year benchmark spread rose to 10 bps from 7 bps on a weekly basis.
10-yr SDL auction cut-off yield rose to 7.79% from 7.77% in previous week while spread increased to 47 bps from 34 bps as compared to previous week.
On a weekly basis, 1-year OIS yield rose by 12 bps to 6.81% while the 5-year OIS yield increased by 9 bps to 6.30%.
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