DebtFX: Macro Data and RBI in Focus

The macroeconomic data releases and the Reserve Bank of India's (RBI) intervention in the domestic liquidity market will drive debt and currency markets this week, says India Ratings and Research (Ind-Ra). The benchmark 10-year G-sec yield is expected to stay in the range of 7.40%-7.50% (7.44% at previous week's close) while rupee could remain in the 66.10-66.90/USD (66.56/USD at previous week's close).

Bond Market Sentiment to Stay Supported: RBI's announcement of another round of open market purchase operation (OMO) for INR100bn may have a salutary impact on government bond yields - with benchmark 10-year yield testing the 7.42% mark. Caution ahead of retail inflation data (to be released on Thursday) will keep the bond investors watchful and limit further softening of yields.

 

RBI Intervenes to Ease Liquidity Constraints: Ind-Ra believes the announcement of INR100bn OMO is a pre-emptive measure by RBI to stave off liquidity crunch that may arise in the course of the week. With the frictional mismatch persisting, the systemic dependence on RBI may stay between 0.25%-0.75% of net demand and time liabilities.

Rupee to Stay Range-bound: Mixed signals from major global economies and swings in crude oil prices are likely to keep the rupee in a range. The medium-term outlook of rupee will hinge on global developments while earnings and flows' position is likely to dictate the near-term range. A protracted recovery in corporate earnings is likely to keep flows to Indian markets subdued.

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