"As Liquidity Comes Back Into The System, Short-Term Yields May Decline"

An interview with Marzban Irani - Chief Investment Officer (Fixed Income), LIC Mutual Fund

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The Reserve Bank of India (RBI) Governor Shaktikanta Das has described the fall in inflation as very satisfying and that it gives confidence that the monetary policy is on the right track. What are your views on the same? 

Inflation has been declining from its peak due to a favourable base effect and fall in food prices. Core inflation which was sticky at 6 per cent for a long time has also declined, which is also comforting for the RBI. CPI has come down and might settle in the range of 4-6 per cent. The RBI may have the necessary comfort to keep rates static as of now. The latest CPI print came at 4.7 per cent which is way below RBI’s projection of 5.1 per cent for the first quarter. With an expectation of normal monsoon, inflation may remain closer to 5 per cent in the near future which is very much within RBI’s tolerance band of 2-6 per cent. In the policy of June we are expecting the RBI to continue to keep the repo rate unchanged at 6.5 per cent as the current inflation print is comfortably below its first quarter projection. Also, they might wait to see how the monsoon turns up while also gauging the effect of previous hikes on growth.

How do you compare the yield movements in Indian bond markets with those in developed markets? What are the key factors driving yield movements in developed markets, especially the US and Europe?