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Gilts surge post-inflation data, anticipating rate cuts in April policy
Gilts ended higher today snapping a four-day slide on the back of the WPI inflation
release. WPI Inflation for the month of February was 6.95% YoY, slightly ahead of the
consensus estimate of 6.75% and higher than previous month’s 6.55%. However, the
breakdown of the data makes for pleasant reading as core and manufacturing inflation
softened further to below 6%, now almost 1.5% below RBI’s comfort level of 7%. The
central bank should gain assurance from the February data and a reading on similar lines
for March can provide the trigger to begin rate action as early as the April policy review.
The 10-Y G-Sec had opened above the previous close and was trading quite weak around
8.35% before the inflation reading. However, sentiment turned around postannouncement
of the WPI inflation figures and the yield rallied almost 10bps intraday
before ending the day at 8.28% vs 8.32%. Attention should soon shift back to the RBI’s
commentary in the policy review tomorrow (no rate action is expected) and a realistic
fiscal consolidation effort in the Union Budget on Friday.
The OIS segment also cheered the inflation data and expectation of earlier rate cuts, with
the near end showing pronounced movement downward. The 1Y OIS ended at 8.03-
8.09% vs 8.06-8.12% while the 5-Y swap ended flat at 7.47-7.53%.
Non-SLR Market
PNB placed 3M CD worth INR 2bn @11.05%. Allahabad Bank placed 6M CD worth INR 7.5bn
@ 11%. Corporation Bank placed 1Y CD worth INR 5bn @ 10.68%.
Money Market
The LAF borrowing has anchored itself at INR 1.25tn since the CRR cut and has not shown
signs of further easing which might be worrying as the advance-tax outflows are yet to hit.
The overnight call WAR was marginally higher at 8.89% vs 8.87%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Gilts surge post-inflation data, anticipating rate cuts in April policy
Gilts ended higher today snapping a four-day slide on the back of the WPI inflation
release. WPI Inflation for the month of February was 6.95% YoY, slightly ahead of the
consensus estimate of 6.75% and higher than previous month’s 6.55%. However, the
breakdown of the data makes for pleasant reading as core and manufacturing inflation
softened further to below 6%, now almost 1.5% below RBI’s comfort level of 7%. The
central bank should gain assurance from the February data and a reading on similar lines
for March can provide the trigger to begin rate action as early as the April policy review.
The 10-Y G-Sec had opened above the previous close and was trading quite weak around
8.35% before the inflation reading. However, sentiment turned around postannouncement
of the WPI inflation figures and the yield rallied almost 10bps intraday
before ending the day at 8.28% vs 8.32%. Attention should soon shift back to the RBI’s
commentary in the policy review tomorrow (no rate action is expected) and a realistic
fiscal consolidation effort in the Union Budget on Friday.
The OIS segment also cheered the inflation data and expectation of earlier rate cuts, with
the near end showing pronounced movement downward. The 1Y OIS ended at 8.03-
8.09% vs 8.06-8.12% while the 5-Y swap ended flat at 7.47-7.53%.
Non-SLR Market
PNB placed 3M CD worth INR 2bn @11.05%. Allahabad Bank placed 6M CD worth INR 7.5bn
@ 11%. Corporation Bank placed 1Y CD worth INR 5bn @ 10.68%.
Money Market
The LAF borrowing has anchored itself at INR 1.25tn since the CRR cut and has not shown
signs of further easing which might be worrying as the advance-tax outflows are yet to hit.
The overnight call WAR was marginally higher at 8.89% vs 8.87%.
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