Fixed Income House View Presentation - Tata Mutual Fund
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FIXED INCOME HOUSE VIEW
RBI OBJECTIVES AND ACTIONS
* Foster economic growth over the coming financial year while keeping a close watch on inflation. RBI would like to be sure of growth impulses getting firmly entrenched before it starts withdrawing its accommodative monetary policy stance.
* RBI stated its intention to ensure orderly evolution of the G-Sec curve & reduce volatility to ensure a stable rate structure. • RBI is expected to support the government borrowing program.
* Intervene through various measures (OMO/G-SAP, Operation Twist) to control upward movement in yields.
* RBI is expected to intervene decisively, especially in the short end of the curve to support bond prices as the government and corporates are expected to borrow in this segment.
* If CPI inflation continues to remain high, measures from RBI to take out surplus liquidity from the system could be activated in the August 2021 monetary policy.
RBI Interventions
* RBI bought almost Rs 27000 crores worth of 10-year G-Sec and canceled an auction during the month. With this buying, RBI now holds more than 65% of the outstanding benchmark paper.
* In the MPC, governor announced GSAP-2 worth Rs 1.2 trillion for the Jul-Sep quarter which was expected. Adding Rs. 10,000 crores of state loans in GSAP-1 gave expectations that RBI might add another Rs.10-20,000 crores of SDL buy back in GSAP-2 as well.
Forex Position
* RBI’s holds a comfortable forex Reserve of $603 billion and forward purchases worth $60 Billion.
* This means RBI can follow its own independent monetary policy at least in the short term and support growth instead of worrying about forex outflows.
RBI ACTIONS AND SYSTEM LIQUIDITY
* RBI has taken steps to ensure liquidity, however rising crude prices have contributed to higher inflation, sparking concerns.
* This has resulted in expectation that if inflation does not reduce, RBI may take steps to reduce excess liquidity
* Liquidity in the system rose significantly from Sep-20 and then stabilized March-21 onwards
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