SENSEX NIFTY
Nov 15, 2012, 06.17 PM IST | Source: CNBC-TV18

Don't expect runaway rally in bond mkt: Moses Harding

Moses Harding of IndusInd Bank expects yields on benchmark bond to hover in the range of 8-8.25 percent for the next six months, considering that there will be two rounds of 25 bps cut by March 2013.

Moses Harding of IndusInd Bank expects yields on benchmark bond to hover in the range of 8-8.25 percent for the next six months, considering that there will be two rounds of 25 bps cut by March 2013.

"It is not going to be a run away rally in bond market despite rate cut expectation because RBI might time the rate cut and the resultant rally by cutting the HTML," he said in an interview to CNBC-TV18.

Meanwhile, he sees the Indian rupee to get into a bullish mode once fiscal deficit issues are sorted. "Even if the market gets a medium-term comfort the issue of dealing with the fiscal deficit, the rupee will get into bullish mode. The rupee has to stay steady to strong till our inflation issues are addressed," he elaborated.

Further, the dollar index is likely to slip below 78.60 levels in the next two-three months, he added.

Below is the edited transcript of Harding's interview with CNBC-TV18.

Q: How do you see bonds moving from now up till December 18th, do you think that the indications that the OIS markets are that a rate cut might come?

A: The cues in the bond market is next, the support presently is coming from the expectation of OMO and rate cut action on or before January. Also, on the negative side we have pipeline auctions, possible overshoot in government borrowing this year and also cut in held to maturity (HTM) limit from 25 percent to 23 percent.

It is not going to be a run away rally in bond market despite rate cut expectation because RBI might time the rate cut and the resultant rally by cutting the HTML. One cannot afford to have 25 percent HTM when statutory liquidity ratio (SLR) requirement is 23 percent. I look at 8-8.25 percent band for the next six months taking into account two rounds of 25 bps cut by March 2013.

Q: Do you think that the best is over for the rupee considering that the strong appreciation that we had seen in the past two-three odd months we are back at 55 odd mark. What is your range till at least the end of the year?

A: The bearish trigger for the rupee was from disappointment in the last monetary policy. We have already seen rupee down from below 52.5 to above 55/USD. The rupee is very down heavily by weak domestic cues. We know that the issues are from growth, fiscal deficit and inflation.

While we were relying heavily on controlling inflation is crossing a negative impact on growth and fiscal deficit and thereby giving headwinds to inflation. Unless we shift our focus to growth and fiscal deficit through low interest rate and surplus liquidity and strong rupee, I do not think we get a quick resolution to inflation.

Q: Would you not be more worried about the trade deficit number. The October number at USD 20 billion is the highest trade monthly tally. Do you see that kind of pressure because exporters are not earning enough, FIIs are there but there isn’t that much of a flow? But if the import bill is growing like this and the trade deficit is so obvious do you see that pressure of people coming into buy dollars?

A: The current account deficit is an issue and it’s an issue for the last couple of decades.

1 2
READ MORE ON  bond, yields, RBI, inflation

ADS BY GOOGLE

video of the day

Be careful while betting on midcaps; like Kotak: Dimensions

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.