By Manish Suvarna
Rates on debt instruments maturing in less than one year fell 5-7 basis points across ratings and tenures on Wednesday, after the Reserve Bank of India (RBI) kept interest rates unchanged in the monetary policy review. The markets were expecting a hike in the reverse repo rate, and accordingly the rates were adjusted on these instruments. The corridor between the repo rate and the reverse repo rate was expected to be narrowed in this policy, but now the speculations over the same have shifted to the next policy meeting.
Along with this, the yield on 10-year benchmark bond 6.10% 2031 eased by 3-4 basis points from its previous close. The yields on commercial papers have eased by 3-5 basis points and by 5-7 basis points for corporate bonds. “Some market participants were expecting a hike in the reverse repo rate, but the RBI has continued a dovish approach which has led to easing of rates,” said Anand Nevatia, fund manager with Trust Mutual Fund.
The Monetary Policy Committee of the RBI kept the key policy rates unchanged and decided to maintain an accommodative stance as long as necessary to revive and sustain growth. The MPC unanimously voted to keep interest rates unchanged and with majority of 5 to 1 for retaining an accommodative stance.
The RBI revised its forecast on consumer inflation and has pegged it at 5.1% in Q3 and 5.7% in Q4. Governor Shaktikanta Das said the headline inflation would peak in the fourth quarter of the current fiscal. It retained its real GDP growth forecast at 9.5% for FY22.
In the policy, the central bank also announced liquidity managing measures by increasing the amount of 14-day variable rate reverse repo (VRRR) auctions in December. It will conduct a VRRR for a notified amount of Rs 6.5 lakh crore on December 17 and Rs 7.5 lakh crore on December 31.
Considering this, market participants expect rates on debt instruments to increase by 10-15 basis points, or maybe more than that, as a huge amount of liquidity is expected to move out of the banking system. “Short-term rates have adjusted higher and will possibly continue to inch closer to the repo rate over next few months,” Upasna Bhardwaj, senior vice president, Kotak Mahindra Bank, said in a report.