One of the few experts who predicted the Reserve Bank of India’s surprising decision to leave interest rates constant after almost a year of raising may prolong, even if the central bank called it a pause.
A Prasanna, head of research at ICICI Securities Primary Dealership, was one of the few analysts who predicted the RBI to stop rate rises on Thursday.
“By the next meeting (in June), if inflation data is in line or somewhat better and worldwide, if we receive a signal that the U.S. Federal Reserve is done with rises, then, I think, their (RBI’s) belief will also strengthen,” said Prasanna.
“The next meeting can lengthen that pause.”
The benchmark 10-year bond yield plummeted to 7.15% as the central bank unexpectedly kept its main repo rate (INREPO=ECI) at 6.50% following six consecutive rises.
When RBI policymakers emphasized that they might continue rate rises at their June meeting, yields rebounded from their session lows.
“This is the only way they could have halted,” stated Prasanna.
The market would have priced in cutbacks if they had added more dovish rhetoric.
The RBI’s predictions of 5.2% inflation in 2023-24, compared to 6.44% in February, will determine future rate rises.
Prasanna anticipates April inflation to drop below 5%, making March and April statistics crucial. In January and February, inflation exceeded the RBI’s 6% target.
Prasanna said that U.S. Federal Reserve expectations, which will be clearer by June’s RBI meeting, will be essential.
With Thursday’s decrease, ISEC-PD anticipates bond yields to stay rangebound.
Prasanna said this halt is good, but the government bond supply remains high. He added that recent tax changes should be considered in debt mutual fund inflows.
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