Treasury expects benchmark bond yields to trade in 7.00%-7.30% band for this fiscal
Kotak Mahindra Bank's treasury head Kotak Mahindra Bank said in an interview that the worst is over for the Indian rupee and bond yields could slide lower in the rest of the fiscal year.
“The worst is behind us due to the strengthening of the global dollar, which means currencies should not get unnecessarily stressed against the dollar,” said Rajeev Mohan, President and Head-Treasury & Global Markets, Kotak Mahindra Bank.
The local currency was trading at 82.75 against the dollar after falling to a record low of 83.29 in October. It has depreciated more than 11.5% so far in 2022 and is on course for its worst year in the last nine.
For the rest of the financial year, the rupee will remain in the range of 81.50 to 83.00 against the dollar. The base case is that the rupee will not hit a new record low in this financial year.
The treasurer expects the benchmark bond yield to trade in the 7.00%-7.30% band for this fiscal and said the benchmark yield may go closer to 7% as most of the negatives are already factored in.
"The bond market is expecting the RBI to hike again in February and then take a pause. So current bond prices already factor this in...the driver will be general demand (as investors) lock-in The bias will be towards the lower side of the range."
The Indian benchmark 7.26% 2032 bond yield 2022 was trading at 7.31%, up nearly 85 basis points, but hit an all-time high of 7.62% in June.
Mohan said, "I think RBI will keep rates on hold for some time. However, markets will move ahead of RBI. The range of possibility of rate cut will keep increasing and will push bond yields (lower)."
He expects the government to announce gross borrowing of about 15 trillion rupees ($181.29 billion) for the next fiscal year, with a fiscal deficit target of less than 6%.
The government aims to cap the fiscal deficit at 6.4% for this financial year with a revised gross borrowing target of Rs 14.21 trillion.
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