In an interview with ET Now, Lakshmi Iyer , Head of Products
& Fixed Income , Kotak Mutual Fund , talks about fiscal deficit and what
can be expected from RBI's monetary policy on 15th of March. Excerpts:
ET Now: The deficit in the financial system has climbed to Rs 180,000 crore. How much worse do you believe it is going to get? Do you believe that when refunds from the MCX IPO start coming back, the situation could look a little better?
Lakshmi Iyer: The MCX IPO is one of the problems which have added to the further liquidity issue. However, that is a thing of the last couple of days. We have seen this liquidity go into the negative zone significantly beyond the RBI's comfort zone for quite sometime now.
Our take is that if there is no CRR cut on March 15th, which is the next monetary policy date, this liquidity situation could further aggravate. This is due to the advance tax which is likely to be in the band of about Rs 50,000 to Rs 60,000 crore and that could take the number to anywhere between the Rs 2,20,000 to Rs 2,30,000. So, the combination of CRR cut and open market operations is what would lead to better liquidity numbers from here on.
ET Now: Montek Singh Ahluwalia said that the interest rate is going to be determined predominantly by what is likely to happen to the fiscal deficit. Where do you see interest rates stabilising in light of that and what is your reading of the yield on the 10 year bond?
Lakshmi Iyer: Fiscal deficit is definitely a challenging situation for the government for FY12 and it would continue to remain a predominant factor determining the direction of rates for 2013. This is because the fiscal deficit is funded through government borrowing programme. Moreover, it is subscribed to buy Indian investors predominantly and to a certain extent FIIs.
So, our take is that if the borrowing programme is likely to shoot up for FY13, which is a resultant of the higher fiscal deficit, we could see some more upward pressure on the 10-year benchmark rates from these levels. It is currently trading at about 8.2%. It could back up by about 10 to 15 bps, taking it on to 8.35%. So, we need to wait and watch out. We are likely to see near term volatility at the shorter end because of liquidity and the longer end because of the uncertain fiscal outlook.
ET Now: The deficit in the financial system has climbed to Rs 180,000 crore. How much worse do you believe it is going to get? Do you believe that when refunds from the MCX IPO start coming back, the situation could look a little better?
Lakshmi Iyer: The MCX IPO is one of the problems which have added to the further liquidity issue. However, that is a thing of the last couple of days. We have seen this liquidity go into the negative zone significantly beyond the RBI's comfort zone for quite sometime now.
Our take is that if there is no CRR cut on March 15th, which is the next monetary policy date, this liquidity situation could further aggravate. This is due to the advance tax which is likely to be in the band of about Rs 50,000 to Rs 60,000 crore and that could take the number to anywhere between the Rs 2,20,000 to Rs 2,30,000. So, the combination of CRR cut and open market operations is what would lead to better liquidity numbers from here on.
ET Now: Montek Singh Ahluwalia said that the interest rate is going to be determined predominantly by what is likely to happen to the fiscal deficit. Where do you see interest rates stabilising in light of that and what is your reading of the yield on the 10 year bond?
Lakshmi Iyer: Fiscal deficit is definitely a challenging situation for the government for FY12 and it would continue to remain a predominant factor determining the direction of rates for 2013. This is because the fiscal deficit is funded through government borrowing programme. Moreover, it is subscribed to buy Indian investors predominantly and to a certain extent FIIs.
So, our take is that if the borrowing programme is likely to shoot up for FY13, which is a resultant of the higher fiscal deficit, we could see some more upward pressure on the 10-year benchmark rates from these levels. It is currently trading at about 8.2%. It could back up by about 10 to 15 bps, taking it on to 8.35%. So, we need to wait and watch out. We are likely to see near term volatility at the shorter end because of liquidity and the longer end because of the uncertain fiscal outlook.
ET Now: Do you believe that the RBI could surprise on the
upside by coming out with a higher than a 50 bps CRR cut on the 15th? Do you
think that RBI will cut CRR by 75 bps or even a 1% cut to address the
challenges that the market is facing?
Lakshmi Iyer: I am not sure that is something which the RBI would want to do right now given that it continues to do open market operations. Today the open market operations figures have topped Rs 1 lakh crore and we still have liquidity continuing to be in the deficit mode.
My sense is that 50 bps is what we are likely to see as a CRR cut. RBI may introduce it in graded phases - may be 25 now and 25-25 in three tranches. This will probably total to 75 bps. But at a stretch going into 75 looks a very low probability given the fact that RBI continues to be committed to do OMOs. Today's market situation clearly warrants open market operations.
ET Now: Do you believe that a combination of that plus CRR cut would likely to sooth liquidity and also bring yields to stable levels?
Lakshmi Iyer: The CRR cut will give some respite on liquidity. It will not lead to a significant soothing on the yield curve front because March is a typical period of historical tightness and liquidity and this March will not be an exception. The liquidity situation is likely to ease only towards the last week of March or probably in the first week of April. So, that is when we could see a transition of the current high state of yield curve to a softer yield curve in the first quarter of FY13.
We are not expecting significant respite even if there were to be a CRR cut of 50 bps or 75 bps on March 15th. If the market gets a sense that the current open market operation trend is likely to continue, then we could see some small respite at the longer end of the GSEC yield curve.
Lakshmi Iyer: I am not sure that is something which the RBI would want to do right now given that it continues to do open market operations. Today the open market operations figures have topped Rs 1 lakh crore and we still have liquidity continuing to be in the deficit mode.
My sense is that 50 bps is what we are likely to see as a CRR cut. RBI may introduce it in graded phases - may be 25 now and 25-25 in three tranches. This will probably total to 75 bps. But at a stretch going into 75 looks a very low probability given the fact that RBI continues to be committed to do OMOs. Today's market situation clearly warrants open market operations.
ET Now: Do you believe that a combination of that plus CRR cut would likely to sooth liquidity and also bring yields to stable levels?
Lakshmi Iyer: The CRR cut will give some respite on liquidity. It will not lead to a significant soothing on the yield curve front because March is a typical period of historical tightness and liquidity and this March will not be an exception. The liquidity situation is likely to ease only towards the last week of March or probably in the first week of April. So, that is when we could see a transition of the current high state of yield curve to a softer yield curve in the first quarter of FY13.
We are not expecting significant respite even if there were to be a CRR cut of 50 bps or 75 bps on March 15th. If the market gets a sense that the current open market operation trend is likely to continue, then we could see some small respite at the longer end of the GSEC yield curve.
Source: http://economictimes.indiatimes.com/opinion/interviews/rbi-unlikely-to-cut-crr-by-75-bps-lakshmi-iyer-kotak-mutual-fund/articleshow/12056116.cms?curpg=2
Posts
No comments:
Post a Comment