Interest rates

RateView : CRISIL's outlook on near-term rates

October 2023

Sanguine September

The yield on the new 10-year benchmark government security (G-sec; 7.18% GS 2033) opened September at 7.14% and closed at 7.21%, up 4 basis points (bps) from its August closing of 7.17% and within CRISIL’s forecast range of 7.15-7.25%.

In the first week, domestic yields tracked higher US Treasury (UST) yields and crude oil prices. OPEC+, mainly Russia and Saudi Arabia, agreed to extend the cut in oil exports. Overall, the domestic 10-year benchmark yield closed higher for the week at 7.20%.

On September 8, the Reserve Bank of India (RBI) decided to discontinue the incremental cash reserve ratio (I-CRR) and release the amount impounded under it in a phased manner - 25% each on September 9 and 23, and 50% on October 7.

In the second week, a lower-than-expected domestic Consumer Price Index (CPI) print for August, at 6.83% vs 7.44% for July, pulled down G-sec yields. The 10-year benchmark yield slipped for the week to close at 7.17%.

The weighted average call rate remained higher than the repo rate. The US CPI increased 3.7% on-year in August, slightly faster than the consensus expectation of a 3.6% rise.

In the third week, J.P. Morgan announced that it will include Indian government bonds EM Index from June 2024. The US Fed kept its interest rates unchanged at 5.5%, though Fed’s dot plot indicated that rates would remain higher for longer. The domestic benchmark yield closed the third week at 7.18%.

In the fourth week, domestic bond yields tracked the rise in UST yields, which hit their highest level since October 2007, especially at the longer end of the curve. The RBI released the calendar for issuance of dated Government of India securities between October 1, 2023 and March 31, 2024. The amount declared, at Rs 655,000 crore, was as per the budgeted estimate. The RBI said a new 50-year dated security will be introduced to cater to demand in the Ultra Long space. The domestic 10-year benchmark yield closed at 7.21% for the week.

In October first week, the RBI kept its repo rate unchanged at 6.50% and maintained its fiscal 2024 inflation forecast at 5.40%. The central bank hinted at sales as a part of the open market operations (OMO) to curb any potential excess liquidity. As a result, the 10-year benchmark yield shot up to almost 7.40% at close on Monday,October 9.

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