{"id":185524,"date":"2023-10-18T06:27:05","date_gmt":"2023-10-18T06:27:05","guid":{"rendered":"https:\/\/indiansapidnews.com\/?p=185524"},"modified":"2023-10-18T06:27:05","modified_gmt":"2023-10-18T06:27:05","slug":"time-rbi-became-data-dependent","status":"publish","type":"post","link":"https:\/\/indiansapidnews.com\/india\/time-rbi-became-data-dependent\/","title":{"rendered":"‘Time RBI became data-dependent’"},"content":{"rendered":"

‘Data-dependence means you can raise or drop rates. The present stance is only for raising rates.’<\/strong><\/p>\n

The government has announced the auction of green bonds for a second straight year. But these might have few natural buyers.<\/p>\n

PNB Gilts managing director and chief executive officer Vikas Goel<\/strong> suggests some incentives.<\/p>\n

In a video interview with Manojit Saha<\/strong>\/Business Standard<\/em>, he says a statutory liquidity ratio (SLR) or liquidity coverage ratio (LCR) multiplier would make these bonds attractive.<\/p>\n

It is widely expected that the Reserve Bank of India (RBI) will keep the repo rate unchanged in its October policy review.
Do you think it should change its stance to neutral?<\/strong><\/p>\n

It is time the RBI became data-dependent and established a glide path.<\/p>\n

A change in stance to neutral does not mean a rate cut.<\/p>\n

Data-dependence means you can raise or drop rates. The present stance is only for raising rates.<\/p>\n

Yes, inflation numbers were high in July and August because of the volatile components — the prices of food and, somewhat, energy.<\/p>\n

Core (inflation) has been sticky at 5 per cent, but it is trending down now.<\/p>\n

Given this, the high headline (inflation) can be addressed.<\/p>\n

As for energy, it is yet to be seen whether the Organization of the Petroleum Exporting Countries (Opec) will continue to reduce production beyond December.<\/p>\n

I think energy prices play a limited role, as there is no price change at pumps.<\/p>\n

Overall, the inflation forecast now – between 4.8-5.25 per cent and 5.40 per cent for September – though above the 4 per cent target, is within the 2-6 per cent range.<\/p>\n

The high prints seem to be behind us. A glide path, therefore, needs to be established, and a change in policy stance might be warranted.<\/p>\n

The borrowing calendar for the second half of 2023-24 was announced recently. With around Rs 2.8 trillion government bonds maturing by March 2024, net borrowing would be under Rs 4 trillion.
Do you expect a rally in bond prices?<\/strong><\/p>\n

A lot would depend on the RBI and liquidity. There is a glide path for yields now.<\/p>\n

The correlation between Indian bonds and the US treasury yields will start reducing as we go along.<\/p>\n

We focus on the low absolute amount of supply. Along with that, as I said, inflation is trending down.<\/p>\n

We may not see yields coming down, but it will definitely not go up either.<\/p>\n

The government has announced the auction of green bonds for a second straight year. Do you expect a ‘greenium’ on these bonds this time?<\/strong><\/p>\n

There are socially responsible funds investing in such issues globally.<\/p>\n

But here we do not have natural buyers preferring to buy these.<\/p>\n

There is no economic reason to pay a premium.<\/p>\n

So, I do not expect a substantial premium.<\/p>\n

But it is a Government of India issuance, and given Indian bonds’ inclusion in (JP Morgan’s emerging market) index, we will have a new set of investors potentially looking at India.<\/p>\n

That might drive some premium. Last year, there was a premium of 5 to 10 basis points.<\/p>\n

This is a relatively new market even globally — less than a decade old — so the premium that used to be there elsewhere no longer exists.<\/p>\n

In India, it is difficult to get a high premium — maybe 20-25 paise.<\/p>\n

What steps need to be taken to make green bonds popular in India?<\/strong><\/p>\n

Some incentives like an SLR or LCR multiplier could be given. Alternatively, a portion of provident fund investments could be dedicated to green bonds.<\/p>\n

That will automatically bring a premium, but it will also mean penalising savers.<\/p>\n

An economic incentive rather than a direction or mandate would be a better way to popularise green bonds.<\/p>\n

What kind of inflows do you expect in the run-up to the actual index inclusion?<\/strong><\/p>\n

There will be a crowding-in effect. Passive buyers will start coming in from June.<\/p>\n

Before that, there would be some active buyers front-running passive ones.<\/p>\n

I do see some flows, but the Indian government bond market generally has not been of great interest to foreign investors.<\/p>\n

Risk-adjusted yields are relatively low, and it makes little sense on a fully hedged basis.<\/p>\n

Some front-running will indeed take place, but the flows might be modest.<\/p>\n

Feature Presentation: Aslam Hunani\/Rediff.com<\/em><\/strong><\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

‘Data-dependence means you can raise or drop rates. The present stance is only for raising rates.’ The government has announced the auction of green bonds for a second straight year. But these might have few natural buyers. PNB Gilts managing director…<\/p>\n","protected":false},"author":2,"featured_media":185523,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"yoast_head":"\n'Time RBI became data-dependent' - Indiansapidnews.com<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/indiansapidnews.com\/india\/time-rbi-became-data-dependent\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"'Time RBI became data-dependent' - Indiansapidnews.com\" \/>\n<meta property=\"og:description\" content=\"‘Data-dependence means you can raise or drop rates. 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