Benchmark yield likely to stay high in September: CRISIL

Over the next three months, the upward pressure is likely to sustain, according to CRISIL.

In September, the 10-year G-sec yield is expected to stay high due to August inflation data and discontinuation of incremental credit reserve ratio (CRR) and advance tax, CRISIL said in its RateView report. In August, the benchmark security’s yield stayed almost flat, opening at 7.16 percent and closed at 7.17 percent.

In September, the rating agency expects 10-year G-Sec yield to stay between 7.15 percent and 7.25 percent.

“Food prices will push headline inflation up for next two months, but cool after government intervention and new crop arrivals,” said the report.

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On the factors influencing their outlook, the analysts wrote that the US Federal Reserve’s stance will exert an upward pressure on the yields, while RBI’s monetary policy, liquidity indicators and call rates/liquidity adjustment facility will have neutral impact.

The US Fed is likely to keep rates higher for longer, according to the report. “S&P Global sees the Fed policy rates remaining higher for longer and does not expect a rate cut until June 2024. In July, the US central bank raised its policy rate 25 basis points to 5.25-5.50%,” it stated.

The rating agency’s analysts expect RBI to hold on to the policy rates.

“We expect the MPC to hold on to policy rates in the next meeting. Uncertainty about the inflation trajectory has increased with the recent flare up in food prices. Monsoon, weather disruptions, government interventions and global food supply are the factors that will influence the inflation outcome, both positively and negatively. A 25-bps rate cut in early 2024 is a conditional possibility for now. The MPC kept policy rates unchanged in August meeting, while maintaining stance of withdrawal of accommodation. The RBI announced a gradual release of liquidity absorbed via ICRR from September-October,” the report said.

Over the next three months, the upward pressure is likely to sustain, according to CRISIL.

On the three-month view, the report stated, “Factors such as food price, inflation print, fiscal numbers, and rate decisions by the Fed and the RBI Monetary Policy Committee (MPC) are expected to exert upward pressure for a couple of months. The discontinuation of incremental CRR should soften yield from current levels. Liquidity will be comfortable and won’t pressure the long end.”