RBI stays hawkish on option to hike rates
By S Jha
New Delhi, February 9: If the US Federal Reserve is talking of disinflation, the Reserve Bank of India also appears to be following the suit to stay hawkish on rate hikes to tame inflation. While several members of US Fed members have sounded caution on the rate hike front, the RBI after its Monetary Policy meeting has sent out mixed signals.
“The hike in repo rate by 25 bps was in line with consensus expectations. However, opinions were divided with regard to continuation of stance. Unchanged stance by RBI was perceived hawkish as it implied that MPC has kept the option for further rate hikes and consequently yields rose by 5 bps across the curve,” HDFC Mutual Fund said in an analysis on the outcome of the RBI policy meeting.
The mutual fund behemoth underlined that “Governor’s (Shaktikant Das) statement highlighted that future policy action will be dependent on incoming data and on how growth and inflation (especially core CPI) dynamic unfold”. “In our view, slowdown in growth and some moderation in inflation may obviate the need for any further rate hikes in this cycle,” added the analysis of the fund house.
Incidentally, investors are keeping eyes on the actions of the Central banks as inflation is proving a challenge globally amid supply chains constraints. “Over the past few months, the Indian 10Y Gsec yield has moved within a narrow range despite significant volatility in global bond yields, rise in domestic policy rates and external sector risks. Majority of these factors have started to ease and consensus is that these are likely to continue moderating in the near term,” it added.
“Over the past few months, the Indian 10Y Gsec yield has moved within a narrow range despite significant volatility in global bond yields, rise in domestic policy rates and external sector risks. Majority of these factors have started to ease and consensus is that these are likely to continue moderating in the near term. Moreover, there is increasing consensus that major central banks, including US Fed and RBI, are nearing the peak of rate hiking cycle driven by significant tightening in 2022 and softening inflation and growth outlook,” added the mutual fund house.
Key risks to yields falling includes elevated core CPI, resilient domestic growth and continued global monetary tightening, the fund house stated, adding “heightened geopolitical risks, elevated oil prices, excess SLR holdings of banks, tight liquidity and robust credit demand are also other important factors which can keep the yields at elevated levels”.
About The Author
