In an exclusive interview with CNBC-TV18, Nitin Jain, Senior VP of ICICI Securities said that a longer-term bond rally up to March 31 is possible as the markets are looking at a softer interest rates scenario on the back of what’s happenings in the US and UK. According to him, as of now, there’s no expectation of a rate cut in the January policy, but, if things pan out even worse in the US RBI may signal a softer bias, if not a rate cut.

Excerpts of CNBC-TV18’s exclusive interview with Nitin Jain:

Q: What is the expectation from hereon? Do you see that the liquidity position has changed for the better and we are in for a longer-term bond rally up until March 31?

A: The bond rally is possible because we are looking at softer interest rate scenario on the back of what is happening in the US, UK and possibly other economies also around the globe. The Finance Minister has also gone on record saying that he would desire slightly softer deposit in lending rates.

The liquidity position has improved and it was expected to improve because government spending is quite heavy around the current time. How it pans out in the future is completely dependent on how RBI conducts its MSS programme.

But on the whole, the market view is very positive and there is even a potential possibility of an intermittent cut in the US. So given all those kind of expectations, bond yields are looking to come down.

Q: What is the level you are looking at? Are you looking at 7.5 for the 10-year? What is your own expectation of the RBI, will they allow liquidity considering the manner in which credit off take has come down?

A: We are not looking at any CRR hike at least to that extent. Yes, RBI will be a bit more considerate towards allowing liquidity to play in the market. Yes, 7.5 is the first target and this rally basically to 7.5, we don’t even need any kind of rate cut signal from RBI. Any rate cut signal will create a rally over and above or below 7.5%.

Q: You are not expecting that rate cut signal anytime soon?

A: As of now there is no expectation of rate cut in January policy. But, if things pan out even worse in the US from the current situations, then why not, RBI may signal a softer bias at least, if not a rate cut.