See 1-2 repo, CRR hikes: Kotak Mah Bk

Mohan Shenoi, Treasurer, Kotak Mahindra Bank, said  in the next one-two weeks there will be double-digit inflation. "Liquidity is going to remain tight partly because of advanced tax outflows and the Monetary Policy stance."

He said, "Our own model shows that at current oil prices of USD 135 per barrel, the government's borrowing could go up by about Rs 20,000-22,000 crore. If the government borrowing goes up, that would be bearish for the bond markets as well. Keeping all these in mind, a 9% figure for the 10-year  is expected. I am also factoring one-two repo hikes and CRR hikes for the rest of the year."

Excerpts from CNBC-TV18’s exclusive interview with Mohan Shenoi:

Q: Where are interest rates headed at this point in time? Do you think the yield curve should shoot up for the rest of the year? Where are you looking at the ten-year?

A: If you look at the inflation numbers, most of the market knows that in the next one-two weeks we will see double-digit inflation. Liquidity is going to remain tight partly because of advance tax outflows and the monetary policy stance, which basically would like to keep the market at the upper end of the interest rate corridor. Given these factors, the undertone in the bond market will continue to be bearish and successive auctions will put pressure on the government securities yield curve. Eventually, I won’t be surprised if ten-year is at 9% as the year goes by.

Q: Would that be because of expanded fiscal borrowing?

A: At the current oil price of USD 135 per barrel, the government borrowing could go up by about Rs 20,000-22,000 crore. So, if the government borrowing goes up, then that would be bearish for the bond markets as well. Keeping all these in mind, a 9% figure for the 10-year is expected. I am factoring one-two repo hikes and CRR hikes for the rest of the year.