March 2014 | srei
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March 2014

Highlights of RBI’s Bi-monthly Monetary Policy Statement 2014-15

  • The Reserve Bank of India (RBI) retained its key interest rates. Hence, the main policy repo rate under the liquidity adjustment facility (LAF) remains at 8.0%.
  • Consequently, the reverse repo rate under the LAF remains at 7.0%, and the marginal standing facility (MSF) rate and the Bank Rate at 9.0%.
  • The RBI also kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4.0% of net demand and time liability (NDTL).
  • The RBI increased the liquidity provided under the 7-day and 14-day term repos from 0.5% of NDTL of the banking system to 0.75%, and decreased the liquidity provided under overnight repos from 0.5% of bank-wise NDTL to 0.25% with immediate effect.
  • This move is in line with the Dr. Urjit R. Patel Committee’s recommendation to de-emphasise overnight “guaranteed-access” windows for liquidity management and progressively conduct liquidity management through term repos. The primary objective is to improve the transmission of policy impulses across the interest rate spectrum.
  • In its stance and rationale for policy action, the RBI stated that it is appropriate, at the current juncture, to hold the policy rate while allowing the rate increases undertaken during September 2013-January 2014 to work their way through the economy. The RBI said it does not expect further near-term policy tightening if headline inflation continues to ease towards the bank's target level.

Among other developments -

  • The RBI asked banks not to charge penalty from depositors for failure to maintain minimum balance in inoperative accounts.
  • The RBI said that in order to enhance hedging facilities for foreign investors in debt instruments, proposed to allow them to hedge the coupon receipts falling due during the next 12 months.
  • The RBI also proposed to allow all resident individuals, firms and companies with actual foreign exchange exposures to book foreign exchange derivative contracts up to $2,50,000 on declaration, subject to certain conditions.

Indian Economy Review

Inflation continues its downward march

The Indian economy continued to benefit from falling prices in March; declines were reported at both the wholesale and retail levels. The Wholesale Price Index (WPI) inflation fell to a nine-month low of 4.68% in February from 5.05% in the previous month and 7.28% during the same month of the last year. Retail inflation measured by the combined Consumer Price Index (CPI) fell to 8.1% in February from 8.8% in the previous month. The declining trend in inflation was primarily an outcome of the base effect (higher prices last year) and fall in food / primary article prices in recent months. While the fall in prices raised hopes of monetary easing by the Reserve Bank of India (RBI), the central bank refrained from making any changes in its policy stance.

Government meets its fiscal 2013-14 divestment target

Thanks to the positive response to the government’s Central Public Sector Enterprise Exchange Traded Fund (CPSE ETF) and sale of 9% stake in Axis Bank held by Specified Undertaking of UTI (SUUTI), the central government was able to meet its downwardly revised divestment target of Rs 16,027 cr for 2013-14. CPSE ETF, which aimed at garnering Rs 3,000 cr, got over Rs 4,000 cr via bids. And, the government was able to sell its 9% stake in Axis Bank for over Rs 5,500 cr via block deals to primarily institutional investors.

Government positive on domestic growth, global bodies raise doubts

The Indian government continued to be positive about growth of the domestic economy. The Ministry of Finance (MoF) stated that strengthening of the equity market and the rupee indicates economic stability. It exuded confidence that growth will improve in the coming months. On the contrary, a Moody’s Analytics report said that the Indian economy is expanding below capacity due to interest rate hike by the RBI. The agency also said that India risks outflows of foreign funds if policy uncertainty continues post elections since the economy remains uncompetitive globally due to high inflation. Meanwhile, an International Monetary Fund (IMF) working paper said that the slump in infrastructure and corporate investment has been the single largest contributor to India's recent growth slowdown.

Gas price hike, banking licences postponed until election results

The proposed gas price hike by domestic oil and gas companies from April 1, 2014 has been deferred by the Election Commission in the wake of the 16th general elections, which will be held in nine phases from April 7 to May 12. The commission said that the decision to hike gas prices should be left to the government that is formed after the general elections. It said that no change in power tariff should be announced until the completion of the polls in a particular state. The RBI also said that it will announce in-principle approval of new bank licences only after consulting with the Election Commission.

Domestic GDP Growth

Other major developments

  • The Prime Minister’s Project Monitoring Group cleared 147 projects entailing an investment of around Rs 5 lakh cr.
  • A government-appointed Empowered Institution approved five public-private partnership projects worth Rs 1,370 cr.
  • The government handed out fresh sops to exporters of a number of labour intensive items such as leather, textiles and chemicals for exporting to the European Union.
  • It also raised interest rates by 10-20 bps for small savings schemes up to a maturity of five years.
  • The government has issued new rules, w.e.f. April 1, 2014, governing the auditors, which also contain details on mandatory rotation of auditors.
  • The Cabinet Committee on Economic Affairs (CCEA) has cleared the hike in fixed cost of urea by up to Rs 350 per tonne, a move that will increase the subsidy by about Rs 900 cr.
  • The MoF allowed public sector banks to hike salaries based on performance but capped the increments to about 10% for weak banks.
  • The government has decided to levy an additional charge on captive coal blocks of steel, cement and sponge iron companies.
  • The Ministry of Civil Aviation has finalised guidelines to incentivise airlines by waiving off landing, parking and navigation charges at specified airports within India.
  • The Telecom Commission approved a slab-based penalty structure, ranging from Rs 1 lakh to Rs 50 cr, to be imposed on operators depending on violations of rules.
  • Telecom Regulatory Authority of India (TRAI) notified 27.5% hike in tariff ceilings for cable TV services offered through non-addressable or analog systems.

Key regulatory developments

  • The RBI has revised the rules for foreign portfolio investors, allowing them to participate in open offers, buyback of securities and disinvestment of shares by the central or state governments.
  • It has also allowed securitisation and reconstruction companies to utilise a part of the funds raised under a scheme from qualified institutional buyers for restructuring of financial assets acquired by them.
  • The RBI has increased trade-related remittance limit from Rs 2 lakh to Rs 5 lakh per transaction.
  • Further, it has capped the interest rate on microfinance loan to an individual at 2.75 times the average base rate of five large commercial banks.
  • It affirmed that loans given by banks to microfinance institutions can get the “priority sector loan” tag only if the latter fulfill the criteria relating to lending rate and margin cap.
  • The RBI has raised the minimum capital requirement for prepaid card issuers five times to Rs 5 cr and has asked them to maintain a minimum net worth of Rs 1 cr.
  • It set the applicable base rate that determines the interest rates NBFCs and MFIs can charge borrowers at 10.09% for the June quarter, and capped the lending rate for MFIs at 27.75% for the same period.
  • Meanwhile, SEBI has started providing additional clarity in its orders to justify the quantum of penalties imposed for defaults and other violations to ensure greater transparency.
  • Further, the Supreme Court has directed the government to immediately withdraw its instruction, if any, for making Aadhaar card mandatory for citizens to avail government services.
Indicators Current Previous
Monthly WPI Inflation 4.68% (February 2014) 5.05% (January 2014)
Industrial Growth 0.5% (January 2014) -0.6% (December 2013)
Exports $282.7bn (April 2013-February 2014) $269.86bn (April 2012-February 2013)
Imports $410.8bn (April 2013-February 2014) $449.79bn (April 2012-February 2013)
Trade Deficit -$128.1bn (April 2013-February 2014) -$179.93bn (April 2012-February 2013)
Gross tax collection Rs 8,92,007cr (April 2013-February 2014) Rs 8,12,616cr (April 2012-February 2013)

IIP Growth

  • India’s factory output measured by the Index of Industrial Production (IIP) rose by an anaemic 0.1% in January, after contracting 0.6% in December.

IIP Core Sector Growth

  • India’s core sector grew 4.5% in February, a five month high, mainly due to growth in the electricity, steel, and cement sectors, from 1.3% in the same month a year ago.

Fiscal Deficit

  • The government's fiscal deficit rose to Rs 5.993 lakh cr in April-February, well above the revised budget target of Rs 5.245 lakh cr for the full year ending March.

Major indicators released in March

  • Trade deficit narrowed to a five-month low of $8.13 bn this February compared with $14.12 bn in February 2013; exports declined 3.7% year-on-year to $25.69 bn in February while imports fell 17.1% year-on-year to $33.82 bn.
  • The commerce secretary informed that India's merchandise exports during the current financial year (April-March) are likely to be around $310 bn against the target of $325 bn.
  • India’s current account deficit for October-December 2013 narrowed to $4.2 bn, or 0.9% of GDP, from $31.9 bn a year ago, or 6.5% of GDP.
  • India’s external debt was $426 bn at the end of December 2013, $21.1 bn higher than the March-end level.
  • Short-term debt declined 2.2% to $92.71 bn at the end of December 2013 against $94.76 bn as on September 30 of the year.
  • Foreign direct investment (FDI) in India dipped 3% to $22.03 bn in 2013 from $22.78 bn in 2012.
  • India’s HSBC Manufacturing Purchasing Managers’ Index (PMI) was 52.5 in February, up from 51.4 in the previous month; Services PMI rose to 48.8 in February from 48.3 in January.

 

Global Economy Review

The US Fed signals interest rate hike in early 2015

Near-zero interest rate regime in the US, which began in December 2008, may end in early 2015. This surmise is based on the US Federal Reserve (Fed) Chief Janet Yellen’s statement that the US central bank could begin raising interest rates six months after it halts its monthly bond-buying programme. The Fed has lowered its monthly bond buying – third time in a row – by $10 bn to $55 bn. Meanwhile, the US government’s final estimate showed that the country’s Q4 (October-December) 2013 gross domestic product (GDP) growth rose 2.6% (annually) from the previous estimate of 2.4%. Further, rating agency Fitch has affirmed the US' AAA credit rating with a stable outlook. Meanwhile, the US government’s budget deficit came in at $194 bn in February compared with a $204 bn shortfall in the same month a year ago.

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Major Global Central Bank
US GDP 2.6% Q4 2013 4.1% Q3 2013 US Fed Funds Rate 0-0.25%
US unemployment 6.7% March 2014 6.7% February 2014 Bank of England 0.50%
UK GDP 0.7% Q4 2013 0.8% Q3 2013 European Central Bank 0.25%
Euro Zone GDP 0.3% Q4 2013 0.1% Q3 2013 Japan Benchmark Rate 0-0.10%
Japan GDP 0.2% Q4 2013 0.3% Q3 2013    
China GDP 7.7% Q4 2013 7.8% Q3 2013    
Singapore’s GDP 6.1% Q4 2013 0.3% Q3 2013    

Key US economic indicators

  • The current account deficit narrowed to $81.12 bn in Q4 2013 following a deficit of $96.37 bn in the previous quarter.
  • Industrial production rose 0.6% in February from the previous month, while capacity utilisation rose 0.3 percentage points to 78.8%.
  • Consumer Price Index (CPI) inflation rate rose 0.1% in February, same as in the previous month. In the 12 months through February, consumer prices increased 1.1% vs a 1.6% rise in January.
  • Retail sales rose 0.3% in February following a revised 0.6% decline in January.
  • The US added 192,000 jobs in March compared with an upwardly revised 197,000 in February; the unemployment rate remains unchanged at 6.7% in the month.
  • On the housing front, new home sales fell 3.3% to a seasonally adjusted annual rate of 440,000 in February following a downwardly revised 455,000 in January while pending home sales dropped by a seasonally adjusted 0.8% in February following a downwardly revised decline of 0.2% in January.

EURO ZONE

Eurozone gets ready to battle deflation

European Central Bank’s (ECB) President Mario Draghi said that the central bank has been preparing additional policy steps to guard against deflation as the strong euro weighs on prices. Expectations of radical action by the ECB to combat the threat of deflation strengthened further after the region’s CPI inflation rate fell to its lowest level since November 2009 at 0.5% in March, down from 0.7% in February. Meanwhile, GDP of the bloc grew by 0.3% in Q4 2013 compared with 0.1% growth in Q3.

Key Eurozone economic indicators:

  • Eurozone’s trade surplus came in at 900 mn euros in January compared with a 13.8 bn euro surplus in December.
  • Industrial production fell 0.2% in January after a drop of 0.4% in December.
  • Retail sales increased by a seasonally adjusted 1.6% in January following a fall of 1.3% in December.
  • The Manufacturing Purchasing Managers’ Index (PMI) fell to a three-month low of 53.0 in March following a final reading of 53.2 in February.

The UK’s 2013 GDP growth revised to 1.7%

The UK’s GDP growth rate for overall 2013 was revised to 1.7% from the earlier estimate of 1.8% while the economy grew 0.7% in Q4 2013, unchanged from its previous estimate. Inflation fell to its lowest annual rate for more than four years at 1.7% in February (vs 1.9% in January). The Bank of England (BoE) / GfK Inflation Expectations Survey in February showed inflation expectations for the coming year are at 2.8% (the lowest level since February 2010) compared with 3.6% in November 2013. Meanwhile, the BoE continued to keep the bank rate unchanged at 0.5% and asset purchases at 375 bn pounds.

Key UK economic indicators:

  • Public borrowing was 9.3 bn pounds in February compared with 9.2 bn pounds in the same month last year.
  • The visible trade shortfall increased to 9.8 bn pounds in January from 7.7 bn pounds in December.
  • Industrial production rose 0.1% in January, slowing from a 0.5% growth rate in the prior month.
  • Retail sales rose 1.7% in February following a 2% fall in January.
  • Jobless claims fell 34,600 in February following a fall of 33,900 claims in January.
  • Jobless claims fell 34,600 in February following a fall of 33,900 claims in January.

ASIA

Asia’s economic growth dependent on China

The Asian Development Bank (ADB), in its Asian Development Outlook 2014, said that growth in the developing countries of Asia will show stronger growth over the next two years but this will be dependent on China's ability to smoothly contain internal credit growth as well as the expected continued recovery of major industrialised countries.

China’s economic growth loses steam

Fear of the world’s fastest growing economy – China – losing steam aggravated following weak economic indicators (falling exports, slowing industrial production and easing Manufacturing Purchasing Managers Index in February). The Asian Development Bank said that China's economic growth will slow to 7.5% in 2014 and 7.4% in 2015 as compared with 7.7% growth seen in 2013. Meanwhile, China’s Central Bank Governor Zhou Xiaochuan said that the country expects to fully liberalise interest rates on bank deposits within two years.

Key Chinese economic indicators:

  • The country’s exports fell 18.1% (annually) in February following a 10.6% jump in January. Imports rose 10.1% in February, almost same as the previous month, thereby resulting in a trade deficit of $23 bn in February versus a surplus of $32 bn in January.
  • Industrial production slowed to 8.6% in January-February, the lowest since 7.3% growth in April 2009, compared with 9.7% in December.
  • Retail sales growth eased to 11.8% in January-February from 13.6% in December.
  • Inflation fell to 2% year-on-year in February, down from 2.5% in January.

Japan’s Q4 GDP growth estimate lowered to 0.7%

Japan’s annual Q4 GDP growth rate was revised down to 0.7% from the preliminary estimate of 1% and 1.1% in Q3. Meanwhile, the Bank of Japan (BoJ) doubled the fund provisioning ceiling under the Growth Supporting Funding Facility to 7 tn yen from 3.5 tn yen. The BoJ’s board also decided to target an annual monetary base expansion pace of 60 tn yen to 70 tn yen. Further, the central bank’s March meeting minutes showed that according to its members the country's economy is continuing its moderate recovery.

Key Japanese economic indicators:

  • The country’s merchandise trade balance recorded a deficit of 800.3 bn yen in February from a downwardly revised deficit of 2791.7 bn yen in January.
  • Industrial production rose 3.8% in January following a 0.9% increase in December.
  • The core Consumer Price Index rose 1.3% in February from a year earlier, same in January and December.
  • Retail sales rose 3.6% year-on-year in February compared with a 4.4% gain in January.
  • The unemployment rate came in at a seasonally adjusted 3.6% in February compared with 3.7% in January.

Singapore to grow at 3.9% in 2014 and 4.1% in 2015

The ADB projected that Singapore's GDP will grow 3.9% in 2014 and 4.1% in 2015. Among key economic indicators, the country’s non-oil domestic exports (NODX) jumped 9.1% year-on-year in February; on a month-on-month basis NODX rose 7.2% in February following a 5% contraction in January. Industrial production rose to an annual rate of 12.8% in February from 4.4% in the preceding month. Consumer prices rose 0.4% in February over a year ago, down from 1.4% in January.

Domestic Fixed Income Review

Domestic G-sec Yield 

 
6 Month LIBOR

Interbank call money rates mostly traded above the RBI’s repo rate of 8% for most part of the month due to increased borrowings by banks towards the end of the financial year and due to outflows towards corporate advance tax. The call rates spiked sharply on last session of the month to end at 10.00-10.50% on March 28 as compared with 7.75-7.90% on February 28 as most state-owned banks did not lower their lending rates, as the financial year came closer to its end. However, further rise in call rates was restricted at regular levels as the RBI periodically conducted repo auctions to ease liquidity in the system. Some pressure on call rates was also eased due to a sporadic fall in CBLO rates, the government’s Rs 15,000 cr and Rs 5,000 cr gilt re-purchase on March 18 and March 24, respectively, and on payment of subsidies to oil marketing companies.

Indian government bond (gilts) prices rose during the month, with the yield on the 10-year benchmark paper 8.83%, 2023 bond falling to 8.80% on March 28 from 8.86% on February 28. Sentiments were boosted following a rise in the rupee after government data showed that the country’s CAD had fallen to its lowest level in eight years. Decline in domestic GDP growth to 4.7% in Q3FY14 compared with 4.8% in Q2 FY14 also augured well for gilts as it raised hopes of monetary easing by the central bank. Fall in both wholesale and retail inflation also augured well for Indian gilts. Sentiment for gilts was also propped up by comfortable liquidity conditions as a result of the RBI’s gilt repurchase auctions conducted during the month.

However, any further rise in gilts was restrained on the back of subdued participation by India’s state-owned banks; as the financial year draws to a close, the banks are in a cautious mode ahead of the release of the government’s borrowing plans on March 28 for the next fiscal. US Fed Chief Janet Yellen’s announcement that the US central bank may hike interest rates as early as March-April 2015 also weighed on the prices. Earlier in the month, caution ahead of the release of domestic consumer and wholesale inflation figures and profit booking also affected bond prices.

Government to borrow Rs 3.68 lakh cr through dated securities in April-September, accounting for 61.6% of the gross market borrowing of Rs 5.97 lakh cr for FY 2014-15. The central government puts on hold its plan to join major emerging market bond indices as that would require the government to remove restrictions on foreign capital inflows. The RBI increased the maximum limit for investment in Inflation Indexed National Saving Securities- Cumulative (IINSS-C) from Rs 5 lakh to Rs 10 lakh per annum for individual investors and from Rs 5 lakh to Rs 25 lakh per annum for non-profit institutions. The central bank switched 30-year government bonds worth Rs 4,400cr with the EPFO in lieu of securities maturing in the short term to help the government reduce bond redemption pressure. The RBI kept the normal Ways and Means Advances (WMA) limit to the state governments unchanged for fiscal 2014-15 at Rs.15360 cr. It also suggested linking Credit Default Swaps (CDS) to underlying exposure and imposing limits on Interest Rate Futures (IRF) positions to strengthen the debt and derivatives market. Further, it said that standalone primary dealerships' exposure to a qualifying central counter party will be kept outside the exposure ceiling of 25% of the net owned funds applicable to a single borrower or counter party. It also revised the capital charge for credit risk of standalone primary dealerships' exposure to interest rate derivative contracts, repo and reverse repo transactions, and central counter parties. SEBI directed stock exchanges and intermediaries to ensure that all over-the-counter trades in corporate bonds are reported within 15 minutes of such transactions. Meanwhile, the BSE Ltd launched BSE New Debt Segment (BSE NDS). IRDA also asked insurers to report their secondary market OTC trades in corporate bonds and securitized debt instruments as per the reporting requirements on any of the stock exchanges (NSE, BSE and MCX-SX) from April 1.

Fixed Income Indicators

Rates & Liquidity

  28-Mar-14 1 Week Ago 1 Month Ago
Repo 8.00 8.00 8.00
Reverse Repo 7.00 7.00 7.00
LAF o/s Repo (Rscr) 36104 37384 22,159
LAF o/s Rev Repo (Rscr) 11880 2963 6,273

Overnight                                                   Rate(%)

  28-Mar-14 1 Week Ago 1 Month Ago
Mibor 8.53 8.85 8.08
Call 10.50 9.00 7.90
CBLO 11.28 7.90 7.98
OIS 1Y 8.58 8.66 8.68
OIS 5Y 8.50 8.52 8.56
 

CDs                                                   Yield(%)

  28-Mar-14 1 Week Ago 1 Month Ago
1-Month 8.58 9.90 8.50
3-Month 8.62 9.30 9.83
6-Month 9.03 9.25 9.80
1-Year 9.06 9.20 9.76

CPs                                            Yield(%)

  28-Mar-14 1 Week Ago 1 Month Ago
1-Month 8.89 10.21 8.95
3-Month 8.86 9.60 10.25
6-Month 9.32 9.62 10.25
1-Year 9.44 9.58 10.12
 

Short Term Bonds                                     Yield(%)

  28-Mar-14 1 Week Ago 1 Month Ago
1 Y G-Sec 8.50 8.60 8.71
1 Y AAA 9.27 9.43 9.89
1 Y AA 9.78 9.94 10.40
2 Y G-Sec 8.44 8.56 8.61
2 Y AAA 9.40 9.50 9.79
2 Y AA 9.89 9.99 10.28

Long Term Bonds                            Yield(%)

  28-Mar-14 1 Week Ago 1 Month Ago
5 Y G-Sec 8.86 8.90 8.97
5 Y AAA 9.55 9.64 9.81
5 Y AA 10.20 10.29 10.46
10 Y G-Sec 8.80 8.80 8.86
10 Y AAA 9.59 9.64 9.74
10 Y AA 10.40 10.45 10.55
 

Top 5 Graded G-Secs                  Yield(%)

  28-Mar-14 1 Week Ago 1 Month Ago
8.83% CGL 2023 8.80 8.82 8.86
08.12 GS 2020 9.04 9.07 9.21
07.28% CGL 2019 8.86 8.87 8.97
08.28% CGL 2027 9.15 9.16 9.29
08.28% CGL 2027 9.17 9.15 9.24

Currency

  28-Mar-14 1 Week Ago 1 Month Ago
USD/INR 59.91 60.89 61.76
EURO/INR 82.58 84.18 85.03
GBP/INR 99.85 100.81 103.31
100 JPY/INR 58.83 59.64 60.99
USD/EURO 0.73 0.72 0.73
 



 
10 Year G-sec Movement

Corporate AAA, AA Bond Spreads

India Government Borrowings Calendar: April – September 2014

Sr. No. Week of Auction Amount (Rs Cr) Security-wise Allocation
1 April 1- 4, 2014 16,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 7,000-8,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
2 April 7-11, 2014 16,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 7,000-8,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
3 April 14-18, 2014 20,000 i) 5-9 Years for Rs 5,000-6,000 cr
ii) 10-14 Years for Rs 8,000-9,000 cr
iii) 15-19 Years for Rs 3,000-4,000 cr
iv) 20 Years & Above for Rs 3,000-4,000 cr
4 April 21-25, 2014 16,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 7,000-8,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
5 April 28- May 2, 2014 16,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 6,000- 7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
6 May 5-9, 2014 16,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 7,000-8,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
7 May 12-16, 2014 20,000 i) 5-9 Years for Rs 5,000-6,000 cr
ii) 10-14 Years for Rs 8,000-9,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
8 May 19-23, 2014 16,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 7,000-8,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
9 May 26-30, 2014 16,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 7,000-8,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
10 June 2-6, 2014 16,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 7,000-8,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
11 June 16-20, 2014 15,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
12 June 23-27, 2014 15,000 i) 5-9 Years for Rs 3,000-4,000 cr
March 2014 15
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
13 June 30-July 4, 2014 15,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
14 July 7-11, 2014 15,000 i) 5-9 Years for Rs 3,000-4,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
15 July 14-18, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
16 July 21-25, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
17 July 28-August 1, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
18 August 4-8, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
19 August 11-15, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
20 August 18-22, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
21 August 25-29, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
22 September 1-5, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
23 September 15-19, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr
24 September 22-26, 2014 14,000 i) 5-9 Years for Rs 2,000-3,000 cr
ii) 10-14 Years for Rs 6,000-7,000 cr
iii) 15-19 Years for Rs 2,000-3,000 cr
iv) 20 Years & Above for Rs 2,000-3,000 cr

Economic Events Calendar

April 11, 2014
  • University of Michigan Consumer Sentiment index, April
  • US Producer Price Index, March
  • US Producer Price Index, March
  • China’s Producer Price Index, March
  • India’s Index of Industrial Production, February
April29, 2014
  • US S&P Case-Shiller HPI, February
  • US Consumer Confidence, April
  • Euro zone Economic Sentiment, April
  • China’s GDP, Q1 2014 (Preliminary)
  • Bank of Japan Monetary Policy Review
  • Japan’s PMI Manufacturing Index, April
  • Japan’s PMI Manufacturing Index, April
April 14, 2014
  • US Retail Sales, March
  • US Business Inventories, February
  • Euro zone Industrial Production, February
  • India’s Consumer Price Index, March
April30, 2014
  • US FOMC Meeting Announcement,
  • US ADP Employment Report, April
  • US Employment Cost Index, Q1 2014
  • Euro zone Consumer Price Index Flash, April
  • China’s CFLP Manufacturing PMI, April
April 15, 2014
  • US Empire State Mfg Survey, April
  • US Consumer Price Index, March
  • US Treasury International Capital, February
  • US Housing Market Index, April
  • UK Consumer Price Index, March
  • UK Producer Price Index, March
  • China’s GDP, Q1 2014
  • China’s Industrial Production, March
  • China’s Retail Sales, March
May 1, 2014
  • US Personal Income and Outlays, March
  • US ISM Mfg Index, April
  • US Construction Spending, March
  • US Motor Vehicle Sales, April
  • UK CIPS/PMI Manufacturing Index, April
  • Japan’s Unemployment Rate, March
April16, 2014
  • US Beige Book
  • US Industrial Production, March
  • US Housing Starts, March
  • UK Labour Market Report, March
  • Euro zone Consumer Price Index, March
May 2, 2014
  • US Factory Orders, March
  • Euro zone Unemployment Rate, March
  • Euro zone PMI Manufacturing Index, April
  • UK PMI Construction, April
  • UK Employment Situation, April
April 17, 2014
  • US Philadelphia Fed Survey, April
  • Japan’s Tertiary Index, February
May 5, 2014
  • US PMI Services Index, April
April 21, 2014
  • US Chicago Fed National Activity Index, March
May 6, 2014
  • US International Trade, March
  • Euro zone PMI Composite, April
  • Euro zone Retail Sales, March
  • UK CIPS/PMI Services Index, April
  • China’s PMI Composite, April
  • Bank of Japan Monetary Policy Minutes
  • Japan’s PMI Composite, April
April 22, 2014
  • US Existing Home Sales, March
  • China’s PMI Flash Mfg Index, April
May 7, 2014
  • US Productivity and Costs, Q1 2014
April 23, 2014
  • US PMI Manufacturing Index Flash, April
  • US New Home Sales, March
  • Euro zone PMI Composite FLASH, April
  • Bank of England Monetary Policy Minutes, April
May 8, 2014
  • European Central Bank Monetary Policy Review
  • Bank of England Monetary Policy Review
  • China’s Consumer Price Index, April
  • China’s Producer Price Index, April
April 24, 2014
  • US Durable Goods Orders, March
  • Japan’s Consumer Price Index, March
May 9, 2014
  • UK Industrial Production, March
  • UK Merchandise Trade, March
April 25, 2014
  • US Consumer Sentiment, April
  • US PMI Services Flash, April
  • UK Retail Sales, March
  • Japan’s All Industry Index, February
   
April 28, 2014
  • US Pending Home Sales Index, March
  • US Dallas Fed Mfg Survey, April
   

 

US Fixed Income Markets - Overview

US treasuries ended marginally lower with the yield on the 10 year benchmark bond rising from 2.66% on February 28 to 2.67% on March 27 due to encouraging domestic data that prompted inflows into riskier investments, the US Federal Open Market Committee’s minutes, and developments between Russia and Ukraine. Bond prices fell after the release of strong non-farm payrolls and consumer confidence data as well as lower Q4 GDP growth figures. US Fed Chief Janet Yellen’s announcement that interest rates could rise in the US earlier than expected dented sentiment for gilts. Russian President Vladimir Putin’s declaration that Russia had no plans to split Ukraine further after making Crimea a part of Russia also weighed on gilt prices. A further fall in gilt prices was however capped on news that the European Central bank had decided to hold interest rates at historic lows. Bond prices rose after the release of weak US consumer sentiment and new home sales data. Escalating tensions in Ukraine, weak economic data from China, and intermittent weakness in domestic equities also supported bond prices.

US 10 Year Govt. Bond Yield

 

Learning Centre– RBI Policy Rates

We often come across television/ newspaper headlines talking about an increase/ decrease in policy rates – repo rate, reverse repo rate, cash reserve ratio (CRR), bank rate, statutory liquidity ratio (SLR) – by the Reserve Bank of India (RBI) to manage inflation, liquidity and growth of the economy. This month’s Learning Centre sheds some light on these key indicators and how they impact investors.

Repo rate: This is the rate of interest levied on commercial banks for borrowing short-term funds from the RBI against approved government securities. An increase in the repo rate deters banks from borrowing, thereby reducing money supply in the economy. This move helps curb inflation and prevents currency devaluation. Higher borrowing costs are passed on to consumers, resulting in an increase in auto loan and home loan interest rates. Bank deposit interest rates may also be increased. The current repo rate is 8%.

Reverse repo rate: As the name suggests, the reverse repo rate is the interest rate commercial banks receive for parking their excess funds with the RBI against approved government securities. Increasing the reverse repo rate makes it more attractive for commercial banks to lend to the RBI, thereby reducing money supply in the economy and arresting inflation. The current reverse repo rate is 7%.

CRR: The CRR specifies the proportion of customer deposits that banks need to maintain as reserves. Having reserves ensures banks can meet unexpected payment demands from depositors as well as other contingencies. The current CRR is 4%.

SLR: It is the portion of deposits that banks must hold in the form of cash, gold and other approved government securities before offering loans to customers, thereby helping to regulate credit extended to customers. SLR is currently fixed at 23% of deposits.

Marginal standing facility (MSF): The MSF rate is the penal rate at which banks borrow funds overnight from the RBI against approved government securities. This came into effect in May 2011. Under MSF, banks avail funds from the RBI on an overnight basis against their excess SLR holdings. The current MSF rate is 9%.

From an investment perspective, short-tenured debt funds perform well in a rising interest rate scenario while long-tenured funds perform better in a falling interest rate scenario.

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