See yield for 10yr bond at 8.3%: Axis Bk

RVS Sridhar, Sr. VP Treasury, Axis Bank said that the markets have already factored in the inflation. He feels banks may increase PLRs if call rates remain at around 7.75%. He sees the 10 year bond yield at 8.3%.

Exceprts from CNBC-TV18's excluxsive interview with RVS Sridhar:

Q: How important is the possibility of a double-digit inflation on June 20? Do you think it is priced-in and the market will go on regardless, this Friday?

A: Yes, it is priced-in. It now is only the extent to which the double-digit inflation number would be higher than expectations. But generally speaking the market has priced-in. We don’t expect too much of a reaction except for the immediate reaction that happens. On a continuity basis, this is more or less priced-in.

Q: What are you observing in the broader market or maybe a quarter down the line or for the next quarter? Do you think that you are going to see money market conditions or overnight rates around that 7.75-8% mark for a goodish period of time? Do you see deposit and lending rates getting hiked up? Would you say a quarter down the line, all this could move up by 0.5-1 percentage point?

A: 1% is too high. Deposit rates will be under pressure. There will be an upward trend in deposit rates because, going forward liquidity should become a premium. I don’t really think PLRs will be raised immediately. Over a period of time if the call rate remains at around 7.75% and the deposit rates remains strong, banks will have no choice but to push up the PLRs.

Q: For 2008, that is for the next six months, what kind of an average yield do you see for the 10-year bond?

A: It should be around 8.3% maybe.

Q: You are not expecting a significant jump to 8.4-8.5% any time in the next six months?

A: I think the liquidity situation should become better over the next one month. That could pull it down.

Q: But you still expect the average to be around 8.3%?

A: Yes.