21
Period
Interest Rate(p.a.)
7 - 14 Days
3.50%
15 - 29 Days
4.25%
30 - 45 Days
5.50%
46 - 60 Days
5.75%
61 - 90 Days
5.75%
91 Days - 6 Months
5.75%
6 Months 1 Day - 6 Months 15 Days
6.00%
6 Months 16 Days
6.00%
6 Months 17 Days - 9 Months 15 Days
6.00%
9 Months 16 Days
6.25%
9 Months 17 Days < 1 Year
6.25%
1 Year
6.90%
1 Year 1 Day - 1 Year 3 Days
6.95%
1 Year 4 Days
6.25%
1 Year 5 Days - 1 Year 15 Days
6.25%
1 Year 16 Days
6.25%
1 Year 17 Days - 2 Years
6.25%
2 Years 1Day - 2 Years 15 Days
6.00%
2 Years 16 Days
6.00%
2 Years 17 Days - 3 Years
6.00%
3 Years 1Day - 5 Years
6.00%
5 Years 1 Day - 8 Years
6.00%
8 Years 1 Day - 10 Years
6.00%
Highlights:
Domestic liquidity conditions
improved during the period as funds continued to remain in the banking system
on account of RBI’s restrictions on cashwithdrawals. Higher deposit growth in the banking systemamidst muted
credit off-take also supported the system liquidity conditions. The daily average system liquidity as measured
by RBI’s Liquidity Adjustment Facility (LAF) was at a surplus of
R
~2.97 trillion during the period compared with
a surplus of
R
~1.53 trillion during the previous period. Absence of issuance of cash management bills (CMBs)
under Market Stabilization Scheme (MSS) also aided the rise in liquidity surplus during the period. Tracking the
liquidity conditions, the overnight call money rates turned volatile and hovered in the range of 5.75%-6.25%.
Government securities
turned volatile tracking global & domestic events and news flows, and closed on a
negative note during the period. The yield on the new 10 year benchmark G-sec, 6.97% 2026 bond, rose sharply
and closed at 6.88% as of 14th February 2017 as against 6.42% as of 13th January 2017, while the yield on
the old 10 year benchmark G-sec, 7.59% 2026 bond closed at 7.03% levels as against 6.56%. In the initial
part of the period anticipation over the outcome of the Union Budget for FY18. RBI’s 6th Bi monthly monetary
policy and caution regarding the economic policies of the US President Donald Trump, led the G-sec yields to
trade in a narrow range. US Federal Reserve Chair Janet Yellen’s hawkish comments in a speech also led to
the rise in the bond yields. Intermittently G-sec yields declined tracking the rise in the system liquidity surplus,
decline in the US treasury yields and some strength in the Rupee against the USD. In another development,
the RBI, in consultation with the government converted four securities from its portfolio maturing in 2017-18
having total face value of about
R
370.78 bn to longer tenor securities maturing in 2024-25 and 2029-30.
This led to positive market sentiments, as the market participants expected that this conversion will reduce
the gross market borrowing for FY18. In the second half of the period the bond yields rose sharply. Post the
announcement of the Union Budget for FY18 the G-sec yields rose marginally as though fiscal prudence was
maintained and the government’s market borrowing were kept almost at the previous year’s levels, there
were no positive surprises in the Union Budget FY18. However G-sec yields rose sharply following negative
sentiments after the announcement to the RBI’s 6th Bi monthly monetary policy. In the monetary policy, the
monetary policy committee (MPC) decided to keep the interest rates unchanged and shifted the policy stance
from “accommodative” to “neutral”. The change in stance of the MPC led to negative sentiments in the bond
markets, as it led the market participants to believe that the scope for further rate cuts has diminished. Apart
from the change in stance, the MPC also sounded cautious on inflation, categorically highlighting upside risks
to inflation in the near term.
India’s Consumer Price Index (CPI)
based inflation continued to decline for the sixth straight month on
back of sharp decline in the food inflation. The headline CPI inflation for January 2017 came in at 3.17% YoY
compared with 3.41% YoY in December 2016 and 5.69% YoY in January 2016. The decline in headline CPI
inflation was primarily due to the fall in food inflation, which was mainly driven by the contraction in Vegetables
and Pulses inflation. The Consumer Food inflation came in at 0.53% YoY in January 2017 as against 1.37% YoY in
December 2016. Core CPI inflation continued to be sticky and it rose in January 2017 compared to the readings
in December 2016. Core CPI for January 2017 came in at 5.07% as against 4.90% as of December 2016.
India’s Index of Industrial Production (IIP)
contracted in December 2016 by 0.4% YoY as against a growth of
5.7% YoY in November 2016. Manufacturing output declined by 2% YoY, whereas mining and electricity showed
positive growth of 5.2% YoY and 6.3% YoY respectively in December 2016. Capital goods index declined by
3% YoY, whereas Consumer goods declined by 6.8% YoY.
Banks’ aggregate credit
growth as of 20th January 2017 stood at 5.9% YoY as against 10.9% YoY as of the
same period last year; whereas banks’ deposit growth continued to remain healthy at 13.9% YoY as against
10.50% YoY as of the same period last year.
Future Outlook
System liquidity
is expected to remain comfortable in the near term amidst higher deposit growth and muted
credit growth. However any measures taken by RBI to suck out excess liquidity might tighten the liquidity
conditions, especially during seasonal demand for funds. Also the recent relaxation of the withdrawal limits
from bank accounts, might put some pressure on banking system liquidity.
Demand-supply dynamics for G-secs
continues to be favorable, with the estimated gross and net government
borrowings for FY18 remaining broadly at similar levels as that of FY17. Also the demand for G-secs from banks
is expected to remain strong in the face of higher deposit growth and muted credit growth. However the net
borrowings of the state governments need to be watched closely, given the fact that the combined borrowings
of Central and State Governments have been rising consistently over the past five years.
Rise in commodity prices, full implementation of 7th Pay Commission and implementation of GST pose upside
risks to the
headline inflation
. Further sticky core inflation also remains a cause of concern for the RBI; though,
higher sowing of Rabi crops is likely to keep the food inflation benign. This along with global financial volatility
may impact RBI’s monetary policy decisions.
Going forward, the
bond markets
will be data dependent and track the movement in headline inflation and
international crude prices as well as exchange rate movement. The “neutral” policy stance in the monetary
policy resolution continues to give flexibility to the RBI to act if the headroom for rate cut is available. However
the change in stance may indicate that Indian interest rates may be nearing the end of rate cutting cycle, though
sudden reversal in interest rate direction is not expected as inflation continues to remain at lower levels and
within RBI’s comfort zone.
With sticky core inflation, continuous rise in crude oil prices and exchange rate volatility; the
volatility in bond
markets
are likely to increase in the near term. On the other hand, surplus liquidity conditions have ensured the
money market rates are near to policy repo rate.
Uncertainty from
global events
like the global monetary policies, economic policies of US president elect
Donald Trump, continuous strengthening of USD and continuous rise in US Treasuries and volatility in Emerging
Market bond yields are likely to increase in volatility in domestic bond markets.
Indicative Quotes
May’17 T Bill 6.22%
August’17 T Bill 6.25%
Note:-The above rates are for amount below
R
1 cr.
(There are differential rates for Senior Citizens)
HDFC FD
- (12-23 Months) – 7.15% (Reg. Monthly Income)
Key Rates
Current
1Mth ago 6 Mth ago 1 Yr ago
1 Yr G-Sec
6.39% 6.25%
6.80% 8.02%
5 Yr G-Sec
6.83% 6.56%
6.95% 7.74%
10 Yr G-Sec
7.03% 6.56%
7.08% 7.72%
5 Yr AAA Bonds 7.22% 7.01%
7.48% 8.30%
HDFC Bank FD Interest Rate (p.a.)
Government Securities Yield Curve
G-sec yields rose across the curve barring the very short end of the yield curve, on
account of negative sentiments. The very short end of the curve saw a marginal
decline following the rise in system liquidity surplus. Yields rose in the range of
2-46 bps across the curve. The 6.97% 2026 benchmark G-sec closed about 46 bps
higher on aMoMbasis. Terms spreads alsowidened during the periodwherein the
spread between the 1year and the 10 years G-secs rose to about 50 bps as of 14th
Feb 2017 as against 16 bps as of 13th Jan 2017; whereas the spread between 5
years and 30 years G-secs widened to 61 bps from 49 bps.
16 January 2017 to 14 February 2017
Yields
Call Rates range for Jan’17-Feb’17
High – 6.25%
Low – 5.75%
HDFC Bank Recommendation:
Investments in Short Term Funds can be considered with an investment horizon of 12 months. Investment into Medium Term Funds with an investment horizon
of over 15 months can be considered by moderate and conservative investors. Income/Duration Funds can be considered by aggressive investors for a horizon of 24 months and above; though
preference currently should be given to dynamically managed funds. Investors looking to invest with a horizon of 1 to 3 months can consider Liquid Funds, while Ultra Short Term Funds can be
considered for a horizon of 3 months and above.
D
ebt
O
verview
Source:- Bloomberg and in.reuters.com
Source:- in.reuters.com
