Interest rates
RateView : CRISIL's outlook on near-term rates
July 2022
June Jitters
The yield on the 10-year benchmark government security (G-sec; 6.54% GS 2032) opened June at 7.42% and closed at 7.44% — outside CRISIL’s forecast range of 7.50-7.70% and up 2 basis points (bps) from the May closing.
The month started on a weak note, with a surge in crude oil prices to a 13-week high of $124.40 per barrel and the 10-year United States Treasury (UST) yield to 3% on concerns over the upcoming inflation print. The 10-year G-sec yield touched a high of 7.53% in the first week, in anticipation of a rate hike by the Reserve Bank of India (RBI) at the ensuing meeting of the Monetary Policy Committee (MPC).'
On June 8, the committee hiked key rates by 50 bps — taking the repo rate to 4.90%, the standing deposit facility (SDF) rate to 4.65%, and the marginal standing facility (MSF) rate to 5.15% — while keeping the cash reserve ratio unchanged. The central bank raised the inflation projection for fiscal 2023 to 6.7% from its April estimate of 5.7%.
Having run up in anticipation ahead of the hike, the benchmark yield softened and closed the day at 7.49%, but went on to close the week on a bearish note at 7.52%, reflecting concerns over the upcoming release of the US Consumer Price Index (CPI) print and domestic inflation print.
The third week of the month saw a jump in yields, with the 10-year G-sec reaching 7.60% after the US Federal Reserve (Fed) hiked interest rates by an aggressive 75 bps amid higher-than-expected US inflation print at 8.6%. Moreover, elevated crude oil prices and expectations of further rate hikes by the RBI hurt market sentiment. The 10-year G-sec traded in the range of 7.56-7.61% during the week.
Towards the end of the month, fears of a potential global slowdown took hold, with investors moving to safe-haven assets. Following the trajectory of UST yields, the 10-year G-sec eased 12 bps to close at 7.43% on June 20. A fall in crude oil prices and overnight index swap (OIS) rates improved market sentiment. The benchmark traded in the range of 7.40-48% in the last week and closed the month at 7.44%.
Analytica