RBI will maintain neutral liquidity, and wants to make sure that liquidity does not get too tight in the domestic market, said R Sivakumar, Head – Fixed Income, Axis Mutual Fund Investment Company.
Over the past several months, the RBI intrudes to sell dollars to stabilize the currency. This results in sucking out of domestic liquidity, and therefore the RBI will have to intrude more through open market operations in order to add liquidity back into the system, said Sivakumar.
The depreciation of the rupee from 70 to 72 indicates that the RBI may not be intervening deeply, decreasing the need to do open market operations and eliminates one major support to bond markets.
Even though liquidity is controlled a lot, there will be no pressure on it from forex sources. The bond markets are undoubtedly not going to be very much pleased with that, said the Head – Fixed Income of Axis Mutual Fund Investment Company.
Sivakumar feels that the market is going well ahead of itself, and the 10-year bonds remained within a range during the period between February 2018 and a few weeks ago. Over the recent past, there was a break out which is mainly driven by the recent depreciation of the currency which is forcing the RBI to re-evaluate the markets.
“RBI is now moving closer to at least two rate hikes,” said Sivakumar.
If the currency were to depreciate, RBI may not intervene much through open market operations, and that is not a good thing for bond markets. If RBI is not involving directly in FX markets, then they will make rate hikes to hold the level of the rupee, added Sivakumar, according to The Economic Times.
“There have been two hikes even before the currency started to depreciate, the recent market behavior just adds to the possibility of future rate hikes,” reported Financial Express.
As rupee keeps depreciating without much intervention from RBI, the market will start believing that RBI will get into rate hike mode to maintain the currency value, said Head – Fixed Income, Axis Mutual Fund Investment Company.
The post ‘RBI Will Maintain Neutral Liquidity:’ R Sivakumar of Axis Mutual Fund Investment Company appeared first on OWLT Market.
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