The trajectory of consumer price inflation and fiscal deficit numbers impacting the demand-supply equation for G-secs would be key determinants of rates over the coming year
External sector pressures and the subsequent Reserve Bank of India (RBI) focus on curtailing inflation resulted in the reversal of the monetary easing cycle from the second half of 2013. Bond yields moved upwards with benchmark 10-year government securities crossing 160 basis points after the month of May. This erased most of the gains accumulated from an easing rate cycle that started in April 2012.
The trajectory of consumer price inflation (CPI) and fiscal deficit numbers impacting the demand-supply equation for government bonds would be key determinants of the structural trend for rates over the coming year.
The market would also need to overcome event risks such as the upcoming general elections and the impact of the expected gradual unwinding of the US Federal Reserve tapering of stimulus, or the quantitative easing (QE) programme.
Fiscal Trends
(This story appears in the 24 January, 2014 issue of Forbes India. To visit our Archives, click here.)