As far as the ten-year bond yields are concerned, Goel thinks it is likely to trough around 7 percent. Besides, the tight liquidity situation may result in yields edging lower, he added.
"The seasonal tightness in liquidity which comes in is going to keep bond yields a bit supported. As we expect RBI to cut rates and to probably signal more to come through, you will see yields likely edging a little bit lower. However, I suspect it to be fairly range bound till we see the new auction calendar start up in April," explained Goel.
Here is the edited transcript of the interview on CNBC-TV18.
Q: We have seen the consumer price inflation (CPI) number coming in very high in India and after that we have seen bond yields jump up to around 7.87 percent, we are also going to get into the period of even tighter liquidity as the advance taxes flow out from March 15. What are you looking at in terms of Reserve Bank of India (RBI) action on March 19 as well as the range that you will give bond yields in India over the next one month?
A: Clearly the consumer price index (CPI) number does make things a little bit harder for RBI. Our expectation is still that they would cut rates by 25 bps at the March meeting, potentially to remove rate cuts to follow through. So, probably it will trough at close to about 7 percent.
Having said that, inflation is an issue which has constrained them. I do still think, given what they have received in the Budget in the form of a reasonable pat towards fiscal consolidation, the RBI will go ahead and cut rates, though the Budget was a disappointment as far as investors are concerned. They are obviously more focused on the wholesale price inflation and that is something they seem more confident about in terms of lower trajectory, at least in the near-term.
I think bonds remain a little bit more constrained. The supply outlook for next fiscal year is definitely a lot more benign than it was for the year, which has just gone by. A lot depends on the appetite from banks and therefore, it had been turned for how quickly credit picks up. But, I would at the outset of the year be putting a lot more weightage on the RBI factor in the policy cut factor to see where bond yields head.
Q: This month, what is the trajectory for the ten year?
A: This month, you do not have any supply and as you mentioned earlier, the seasonal tightness in liquidity which comes in is going to keep bond yields a bit supported. As we expect RBI to cut rates and to probably signal more to come through, you will see yields likely edging a little bit lower. However, I suspect it to be fairly range bound till we see the new auction calendar start up in April.
More to come.
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