By Mr. Rishi Kohli, Chief Investment Officer, Jio BlackRock Asset Management Company
The MPC decision to reduce the policy repo rate to 5.25% (Bloomberg Survey: 5.25%) and maintaining the neutral stance was in line with our expectations. We continue to maintain our assessment that we are near the end of the interest rate easing cycle. In the best-case scenario, we see the terminal repo rate at 5.0%, but the bar seems high in the present global macro and geopolitical environment.
The RBI Governor’s statements regarding liquidity management which was broad and generic seem to have somewhat disappointed the bond markets, which had been looking for more concrete announcements on liquidity and/or open market operations. Hence, this led to the yields spiking up by 6-10bps from 1-year to 10-year paper across government bonds and those of state-owned entities (SOEs).
In the present macro environment, we anticipate local bond yields would have tendency to head higher over the medium term in line with the movements seen today. Central Bank intervention via OMO bond purchases is expected to address intermittent market volatility.