The forthcoming RBI Monetary Policy meeting is going to be held from 4th to 6th of the current month. RBI has maintained status quo on policy repo rate since Feb at 6.5%. It is also expected that the current policy repo rate will be kept unchanged in the coming policy meeting in the current economic scenario.
During August, domestic consumer inflation declined to 6.83% as compared to 7.44% in the previous month. The fall in inflation was driven by softening of vegetable prices. In the coming months, consumer inflation is likely to fall further to come down below the upper band of inflation (6%) pegged by the central bank.
Economic activity has also picked up. Industrial output expanded by 5.7% in July 23 from 3.7% in June 23. Domestic liquidity has stood deficit at Rs 867 billion as of 28th Sep 23.
Globally, the Fed Reserve kept the fund rate unchanged in the last policy meeting, with indication of one more rate hike during this year.
Current Account Deficit- India’s current account deficit (CAD) narrowed to US$ 9.2 billion (1.1% of GDP) in Q1FY24 from US$ 17.9 billion (2.1% of GDP) in Q1FY23 but it was higher than US$ 1.3 billion (0.2% of GDP) in Q4FY23.
Trade Deficit- India registered a merchandise trade deficit of USD 24.2 billion in August 2023. Imports fell by 5.2% year-on-year to USD 58.64 billion and exports declined by 6.9% to USD 34.48 billion.
Government bonds, SDL and OIS yield movements
During the past week, there were several notable changes in bond yields:
The yield for the 7.18% 2033 bond yield rose by 6 bps to 7.22%. Similarly, the 10-year benchmark 7.26% 2033 bond yield increased by 6 bps to 7.25%. The 7.06% 2028 bond's yield rose by 5 basis points, reaching 7.23%. In the same line, the long-term paper, represented by the 7.25% 2063 bond, its yield rose by 8 bps to 7.42%.
The spread between the 10-year and 5-year bonds rose to 2 basis point from 1 basis point difference in the previous week. The spread between the 15-year benchmark and the 10-year benchmark stood flat at 8 basis points. Additionally, the spread between the 30-year benchmark and the 10-year benchmark increased to 16 basis points from the prior 15 basis points over the week.
In terms of the 10-year SDL auction, the cutoff yield stood flat at 7.47% as compared to 7.46%, while the spread rose to 33 basis points from 31 basis points.
Lastly, in the Overnight Indexed Swap (OIS) rates, the 1-year OIS yield stood unchanged at 7.08%, while the 5-year OIS yield rose by 7 bps to 6.73%.
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