November-2016 | srei
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Highlights of RBI's Fifth Bi-monthly Monetary Policy Statement 2016-17

It has been decided to:

  • keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.25%.
  • Consequently, the reverse repo rate under the LAF remains unchanged at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.
  • The decision of the MPC is consistent with an accommodative stance of monetary policy in consonance with the objective of achieving consumer price index (CPI) inflation at 5% by Q4 of 2016-17 and the medium-term target of 4% within a band of +/- 2%, while supporting growth.
  • RBI cut India's expansion forecast for the current financial year (FY) to 7.1%, from 7.6% earlier, saying that short-term disruption in economic activity and demand compression arising out of demonetisation have led to downside risks to growth.

Indian Economy Review

The government's demonetisation decision likely to weigh on the country's economic prospects

On November 8, 2016, Prime Minister Narendra Modi announced demonetisation of Rs 500 and Rs 1,000 currency notes as legal tender in a move to clamp down on black money and counterfeit notes. But the move is seen to have short-to medium-term impact on the country's economic growth. The government expects gross domestic product (GDP) to fall to 5.5% in the October-December quarter. GDP grew 7.3% in July-September 2016 compared to growth of 7.1% in the April-June 2016 quarter and lower than 7.6% in the same quarter last year, aided by a rise in agricultural growth. Showing optimism, Finance Minister Arun Jaitley said demonetisation will expand the size of the economy, increase the revenue base and make the system cleaner while preserving its credibility. The Central Statistics Office will release the first advance estimates of economic growth for the current financial year on January 7 to help the government prepare the budget. Standard and Poor's (S&P) affirmed India's sovereign rating for long term at 'BBB-' and short term at 'A-3' with stable outlook.

Domestic GDP Growth

Domestic GDP Growth


Inflation continues to trend down

India's Consumer Price Index (CPI)-based inflation for October 2016 came in at 4.20% against 4.39% in September, while Wholesale Price Index (WPI)-based inflation fell to a four-month low of 3.39% in October from 3.57% in the previous month. The decline was mainly driven by fall in food inflation, especially in vegetables, fruits and pulses.

The Cabinet took the following key decisions

  • It decided to present the Union Budget 2017-18 on February 1.
  • It cleared a proposal to amend the Income Tax Act to impose around 60% deduction on unaccounted deposits in banks above a threshold.
  • It approved incremental changes in the visa policy of the country.
  • It raised the minimum support price (MSP) for all rabi crops for the 2016-17 season.

Government enters into pacts with many countries

  • India and the US reached a deal for the first bilateral advance pricing agreement.
  • India and Japan signed a civil nuclear cooperation deal. They also signed 10 pacts covering areas such as infrastructure, railways and agriculture.
  • India and the UK decided to set up a working group on trade. The UK will invest 160 million pounds across 75 start-ups in India. It also announced an additional 20 million pounds for a start-up India venture capital fund.
  • The Australian government announced 19 grants for several projects in education, science, sports, arts and culture with India.
  • Switzerland and India signed a joint declaration for automatic exchange of information under which Switzerland will automatically share information with India on Swiss bank accounts of Indians as of September 2018 and onwards.

Among other major developments

The Goods & Services Tax (GST) Council has decided to have a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess. However, it failed to agree on the sharing of administrative powers under the new tax regime. The GST Network (GSTN) launched a web portal for migration of taxpayers. The government proposed to levy a total tax, penalty and surcharge of 50% on the amount deposited post demonetisation while higher taxes and stiffer penalty of up to 85% await those who do not disclose but are caught. It announced a slew of measures to boost cashless transactions, including waiving of services charges on online purchases and recapitalisation of district central cooperative banks, for providing winter crop loans to small and marginal farmers. The government said cash withdrawal restrictions will be eased once the supply of new, hard-to-fake Rs 500 and Rs 2,000 currency notes improves and a stockpile of lower denomination notes is created. It also decided to grant permanent residency status for 10 years with multiple entry to foreign investors, making investment of minimum Rs 10 crore to be brought within 18 months or Rs 25 crore to be brought within 36 months. The government sold 1.63% stake in L&T held through the Specified Undertaking of the Unit Trust of India (SUUTI) for Rs 2,080 crore.

Prime Minister Modi launched a rural housing scheme which proposes to provide an environmentally safe and secure 'pucca' house to every rural household by 2022. The government proposed annual surveys to assess labour force and unemployment rate. It decided to launch clean energy equity fund of up to $2 billion. It also extended duty drawback facility for one year on all textile products to boost exports, and increases rates in some cases for the benefit of Indian exporters. The Ministry of Finance (MoF) asked banks to convert small bank accounts into Pradhan Mantri Jan Dhan Yojana accounts. The government mandated the use of over 20% indigenous components in mobile devices and 40% in telecom equipment made in India for companies seeking 3% interest subsidy on exports.

The government asked banks and the National Payments Corporation of India to waive charges on e-transactions until December 31. It decided to levy up to Rs 8,500 per flight on major routes to fund the regional air connectivity scheme. It is planning to withdraw tax exemption on long-term capital gains on the sale of penny stocks. The Ministry of Commerce and Industry moved a proposal for the consideration of the Cabinet to completely ban foreign direct investment (FDI) in the tobacco sector. The Insolvency and Bankruptcy Board of India became operational from December 1.

The government set up a panel to identify all possible modes of digital payment across sectors. It removed excise duty on goods for manufacturing of POS (point of sale) machines that are in great demand as merchants are being compelled to use them in the wake of currency crisis. It also ordered LPG producers to supply all the cooking gas (LPG) they produce locally to state-owned oil companies only, and private retailers have been asked to source their requirements through imports.

Among regulatory developments

The Reserve Bank of India (RBI) allowed mobile wallet users to recharge their wallets with maximum Rs 20,000 instead of Rs 10,000 with minimum know your customer (KYC) norms. Telecom Regulatory Authority of India (TRAI) reduced tariffs for a communications protocol used in mobile banking and payment services to a third of the existing rates. It also proposed common interconnection framework for broadcasters. Directorate General of Civil Aviation (DGCA) asked operators to not operate non-operational airfields without the approval of the local administration. It also notifies a new cess applicable on domestic flights in order to create a fund for the regional connectivity scheme. Airports Authority of India allowed nationalised / any scheduled commercial bank to open and operate currency small exchange counter on a temporary basis at Chennai airport 'free of cost' up to December 31. Competition Commission of India approved the amalgamation of Bharatiya Mahila Bank into SBI.

Among key economic indicators released in the month

India's industrial output growth rose 0.7% in September, buoyed by the electricity and manufacturing sectors, after declining 0.7% in August. The core sector witnessed a growth rate of 6.6% in October 2016 compared to 5% in the previous month and 3.8% year ago. India's fiscal deficit came in at Rs 4.24 lakh crore for the seven-month period ended October 2016, accounting for 79.3% of the Rs 5.34 lakh crore budgeted for the entire year. The country's exports in October stood at $23.5 billion, up 9.6% from a year ago, while imports rose 8.1% from a year earlier to $33.7 billion in October, leaving a trade deficit of $10.2 billion. According to Central Board of Direct Taxes (CBDT), Rs 3.77 lakh crore was collected in direct taxes during the April-October period of 2016-17, up 10.6% than the collections in the same period a year ago; indirect tax revenue stood at Rs 4.85 lakh crore during April-October 2016-17, up 26.7% from a year earlier. Foreign direct investment (FDI) into India increased 77.5% to $5.15 billion in September this year. The government's public debt rose 3% in the July-September quarter compared to the previous quarter.

India's Nikkei manufacturing Purchasing Managers' Index (PMI) climbed to a 22-month high of 54.4 in October from 52.1 in September, while services PMI advanced to 54.5 in October from 52 in September.

Indicators Current Previous
Monthly WPI Inflation 3.39% (Oct 2016) 3.57% (Sep 2016)
Industrial Growth 0.7% (Sep 2016) -0.7% (Aug 2016)
Exports $154.91bn (April - October 2016) $155.18bn (April - October 2015)
Imports $208.08bn (April - October 2016) $233.42bn (April - October 2015)
Trade Balance - $53.17bn (April - October 2016) -$78.24bn (April - October 2015)
Gross Tax Collections Rs 8,18,884 cr (April-October 2016-17) Rs 6,93,842 cr (April-October 2015-16)

IIP Growth

IIP Growth

  • India's industrial output growth rose 0.7% in September, buoyed by the electricity and manufacturing sectors, after declining 0.7% in August.

IIP-Core Sector Growth

Core IIP Growth

  • The core sector witnessed a growth rate of 6.6% in October 2016 compared to 5% in the previous month and 3.8% year ago.

Fiscal Deficit

Fiscal Deficit

  • India's fiscal deficit came in at Rs 4.24 lakh crore for the seven-month period ended October 2016, accounting for 79.3% of the Rs 5.34 lakh crore budgeted for the entire year.

Global Economy Review

Global economic outlook turn optimistic

The Organization for Economic Cooperation and Development (OECD) upgraded its global economic outlook for 2017 to 3.3% from the earlier projection of 3.2% on view that growth will be supported by fiscal stimulus despite weak trade and investment.

US economy expected to get a boost from increased infrastructure spending

The OECD said, global growth will pick up faster than expected as the US President-elect Donald Trump administration's planned tax cuts and public spending will boost the US economy. The OECD raised the US economic growth forecast for the next year to 2.3% from the earlier forecast of 2.1% growth. The US Federal Reserve (Fed) kept the interest rate unchanged in its latest meeting, but signalled that the time for another interest rate hike is approaching and it does not need more evidence before moving. Meanwhile, the US GDP growth was raised to 3.2% annual rate in Q3 compared to the initially estimated 2.9% increase and following the second quarter's 1.4% growth.

World GDP Growth

World GDP Growth

Major Indicators Current Previous Major Global Central Bank Latest Key Interest Rates
US GDP 3.2% Q3 2016 1.4% Q2 2016 US Fed Funds Rate 0.25-0.50%
US unemployment 4.6% Nov 2016 4.9% Oct 2016 Bank of England 0.25%
UK GDP 2.3% Q3 2016 2.1% Q2 2016 European Central Bank 0.00%
Euro Zone GDP 1.7% Q3 2016 1.7% Q2 2016 Japan Benchmark Rate -0.10%
Japan GDP 2.2% Q3 2016 0.7% Q2 2016    
China GDP 6.7% Q3 2016 6.7% Q2 2016    
Singapore's GDP 1.1% Q3 2016 2.0% Q2 2016    

Key economic indicators

  • The budget deficit came in at $44 billion in October, down 68% from the shortfall in the same month a year ago.
  • The trade gap narrowed 9.9% to $36.4 billion in September compared with revised deficit of $40.5 billion.
  • Industrial production growth was flat in October compared to a decline of 0.2% in September.
  • The Consumer Price Index (CPI) increased 0.4% in October after rising 0.3% in September.
  • Retail sales advanced 0.8% in October compared to a 1% growth in September.
  • The non-farm productivity rose at a 3.1% annual rate in Q3 compared to a revised fall of 0.2% in Q2.
  • In housing indicators, new home sales fell 1.9% in October from the prior month to a seasonally adjusted annual rate of 563,000, while existing home sales increased to an annual rate of 5.6 million units in October compared to September's revised sales pace of 5.49 million units.

Eurozone economy prove to be resilient

The Eurozone economy expanded 1.6% annually in Q3 compared to similar growth in the previous quarter. The European Commission said, the GDP in the euro area will rise 1.5% in 2017, down 0.3% than it forecast in May 2016. European Central Bank Chief Mario Draghi said, Eurozone proved to be resilient to many shocks this year despite uncertainty arising from the economic and political environment, largely owing to stimulus measures adopted by the central bank.

Key economic indicators

  • Eurozone recorded a 26.5-billion-euro surplus in trade in goods with the rest of the world in September, compared with 19.2-billion-euro surplus in the same month last year.
  • Industrial production declined 0.8% in September compared to 1.8% growth in August.
  • Retail sales grew a calendar adjusted 1.1% on-year in September following a 1.2% increase in August.
  • CPI inflation accelerated to a 31-month high at 0.6% in November from 0.5% in October.
  • The jobless rate dropped to 9.8% in October from a revised 9.9% in September.

UK growth forecast improves

The OECD said that the Bank of England (BoE) was right in cutting interest rates in August to a new record low of 0.25% as it boosted consumer confidence. The economic organisation raised its forecast for the UK's GDP growth forecast to 2% from 1.8% for 2016 and to 1.2% from 1% for 2017. BoE kept its monetary policy unchanged in November. On inflation trajectory, the central bank projected the inflation to rise above the 2% target within the next 12 months and only to begin to fall back in the second half of the three-year forecast period. Meanwhile, GDP growth rate was confirmed at 2.3% annually in Q3 compared with initial projection and 2.1% growth in Q2.

Key economic indicators

  • Trade balance on trade in goods showed a shortfall of 12.7 billion pounds in September compared to a deficit of 11.1billion pounds registered in August.
  • Industrial output fell 0.4% on-month in September, repeating its performance in August.
  • Retail sales jumped 1.9% on-month in October after edging up 0.1% in September.
  • CPI inflation rose by 0.9% in the year to October, compared with a 1.0% rise in the year to September.
  • The ILO unemployment rate dipped to 4.8% in the July-September period, compared to 4.9% for the three months ended August.
  • Employment growth dropped to 49,000 in the three months to September from 106,000 in August and 173,000 in the three months to July, while the claimant count jumped by almost 10,000 to 803,300.

China to grow 6.7% in 2016

The OECD predicted growth of 6.7% in 2016, but projected lower growth of 6.4% and 6.1% in 2017 and 2018, respectively. The Chinese government's goal is to achieve an average annual rate of 6.5% during the 2016-20 period to realise its target of doubling the per capita income by 2020 from a 2010 base.

Key Economic Indicators

  • The trade surplus widened to $49.06 billion in October from $41.99 billion in September. Exports in October fell 7.3% on-year, improving from September's 10% plunge, while imports declined 1.4%, following the 1.9% drop in September.
  • Industrial output rose 6.1% in October from a year earlier, same as in the previous month.
  • CPI inflation rose 2.1% in October from a year earlier, compared with 1.9% increase in September.
  • Retail sales rose 10.0% in October from a year earlier, compared with 10.7% increase in September.
  • Fixed asset investment grew 8.3% on-year during the January-October period, up from 8.2% gain in the first three quarters.
  • The official manufacturing PMI rose to 51.7 from 51.2 in October, while non-manufacturing PMI rose to 54.7 in November from 54.0 in October.

Japan grew faster than expected

Japan's economy expanded by an annualised 2.2% in Q3, faster than 0.7% increase in Q2. The OECD upgraded Japan's growth outlook for 2017 to 1% from 0.7% and added that the Bank of Japan should maintain monetary easing until inflation is above its 2% target, but should be mindful of financial distortions caused by its policies.

Key Economic Indicators

  • Industrial production rose 0.1% in October from a month earlier, following 0.6% gain in September.
  • The exports fell 10.3% in the year to October, compared with September's 6.9% decline, while imports fell 16.5% in October, resulting in a trade surplus of 496.2 billion yen.
  • Retail sales fell at an annualised 0.1% in October, following a 1.7% drop in September.
  • CPI inflation fell 0.4% from a year earlier in October, compared with a 0.5% drop in September.
  • The unemployment rate held steady at 3% in October.
  • The household spending falls 0.4% in October following the 2.1% fall in September.
  • The Markit/Nikkei final manufacturing PMI for November came in at 51.3 in November, compared with 51.4 in October.
  • The leading index, which measures future economic activity, rose to 100.9 in August from 100.0 in July.

Singapore's economy grew 1.1% in Q3

Singapore's economy grew faster than expected by 1.1% on-year in Q3 compared with preliminary estimate of 0.6%, led by improvement in the manufacturing sector. The Ministry of Trade and Industry narrowed its 2016 GDP forecast to between 1% and 1.5% for 2016, compared with an earlier forecast of 1% and 2%. Industrial production rose 1.2% on-year in October, following 7.7% rise in September.

Domestic Fixed Income Review

Domestic G-sec Yield

6 Month LIBOR

The interbank call money rate remained below the repo rate for most of the month mainly owing to comfortable liquidity in the system following the government's demonetisation decision, which resulted in the banking system witnessing large inflows of funds as customers deposited their defunct higher denomination currencies. Call rates were also supported by the sporadic repo auctions conducted by the Reserve Bank of India (RBI) earlier in the month. However, some stress was witnessed on the rates after the RBI conducted a series of reverse repo auctions to suck out excess liquidity resulting from the demonetisation decision. Further, as a one-off measure to drain away high liquidity, the central bank, on November 26, announced an incremental cash reserve ratio (CRR)of 100% on deposits with banks between September 16 and November 11.

Government security prices (gilts) soared in the month with the yield of the 10-year benchmark - the 6.97%, 2026 paper falling to 6.24% November 30, 2016, compared with 6.79% on October 28, 2016. Gilts surged primarily on the back of the government's move to take Rs 500 and Rs 1000 denomination notes out of circulation, which resulted in significant improvement in systemic liquidity, translating into an increase in demand for government securities as banks are required to maintain a percentage of their deposits as liquid assets. Growing expectations that the Monetary Policy Committee (MPC) will vote to cut interest rates at its two-day meeting beginning December 6 further increased the appetite for bonds. India's latest domestic consumer inflation figures for October also aided appetite for debt. Prices received further support after rating agency S&P retained India's long-term sovereign rating at 'BBB-' and short-term rating at 'A-3', with a stable outlook. It ruled out a rating upgrade for two years, adding that a case for an upgrade could be made if the government's reforms markedly improve its fiscal outturns. Earlier in the month, prices had received a boost prior to the US presidential election outcome, as market players expected Democratic Party nominee Hilary Clinton to win.

However, further advance in gilts was restrained owing to the RBI's decision to impose an additional CRR requirement for banks, which impounded most of the surplus liquidity of the banking system. Further, RBI Governor Urjit Patel said the central bank would issue securities under the Market Stabilisation Scheme (MSS) to further manage the liquidity condition. Intermittent spike in US bond yields coupled with profit booking and weakness in the rupee also weighed on prices. Sentiment was dented slightly owing to lower-than-expected cut-offs at some of the government's bond repurchase auctions and weekly debt sales.

Among major developments, the RBI increased the limit for issuance of securities under the Market Stabilisation Scheme (MSS) to Rs 6 lakh cr for 2016-17 from Rs 30,000 cr.. The government plans to sell $750 million of offshore rupee bonds in London and Singapore to build roads. The RBI expanded the list of eligible debt instruments that foreign portfolio investors (FPIs) are allowed to invest in under the corporate bond route. It will now include unlisted corporate debt securities issued by public or private companies and securitised debt instruments. The RBI said all statutory liquidity ratio (SLR)-eligible government bonds, state development loans and treasury bills will now be eligible to be used for repo and reverse repo transactions with the central bank. It also decided that oil bonds issued by the government will qualify as eligible securities for its liquidity operations. Securities and Exchange Board of India (SEBI) decided to permit FPIs to invest in unlisted corporate debt securities and securitised debt instruments with a ceiling of Rs 35,000 crore. It also asked market intermediaries to follow a uniform methodology for calculating interest payments on debt securities. Further, it re-constituted its committee that suggests a roadmap for developing corporate bond market in India. Meanwhile, trade repositories of BSE and NSE for the corporate debt market started dissemination of data on primary issuance of corporate bonds.


Fixed Income Indicators

Rates & Liquidity

  30-Nov-16 1 Week Ago 1 Month Ago
Repo 6.25 6.25 6.25
Reverse Repo 5.75 5.75 5.75
CRR 4.00 4.00 4.00
LAF o/s Repo (Rscr) 5108 2200 13718
LAF o/s Rev Repo (Rscr) 4305 8486 16909

Overnight                                         Rate(%)

  30-Nov-16 1 Week Ago 1 Month Ago
Mibor 6.51 6.21 6.24
Call 5.90 6.25 6.20
CBLO 6.15 6.03 6.20
OIS 1Y 6.00 5.97 6.35
OIS 5Y 6.08 6.11 6.35

CDs                                                             Yield(%)

  30-Nov-16 1 Week Ago 1 Month Ago
1-Month 6.15 6.10 6.43
3-Month 5.97 5.88 6.61
6-Month 6.21 6.22 6.78
1-Year 6.34 6.28 6.90

CPs                                                   Yield(%)

  30-Nov-16 1 Week Ago 1 Month Ago
1-Month 6.85 6.40 6.65
3-Month 6.40 6.35 7.12
6-Month 7.00 7.00 7.56
1-Year 7.25 7.25 7.65

Short Term Bonds                                        Yield(%)

  30-Nov-16 1 Week Ago 1 Month Ago
1 Y G-Sec 6.24 6.05 6.57
1 Y AAA 6.59 6.52 7.15
1 Y AA 7.11 7.04 7.67
2 Y G-Sec 5.99 6.04 6.54
2 Y AAA 6.65 6.67 7.20
2 Y AA 7.12 7.14 7.67

Long Term Bonds                          Yield(%)

  30-Nov-16 1 Week Ago 1 Month Ago
5 Y G-Sec 6.20 6.23 6.70
5 Y AAA 6.74 6.75 7.31
5 Y AA 7.39 7.40 7.96
10 Y G-Sec 6.24 6.28 6.89
10 Y AAA 7.03 6.99 7.51
10 Y AA 7.85 7.81 8.33

Top 5 Graded G Secs                                   Yield(%)

  30-Nov-16 Previous Close 1 Month Ago
07.59 GS 2026 6.36 6.43 6.89
06.97 GS 2026 6.24 6.32 6.79
07.61 GS 2030 6.46 6.52 7.00
07.59 GS 2029 6.48 6.53 7.01
07.68 GS 2023 6.29 6.35 6.84


  30-Nov-16 1 Week Ago 1 Month Ago
USD/INR 68.38 66.57 66.79
EURO/INR 72.84 72.78 72.91
GBP/INR 85.53 84.97 81.30
100 JPY/INR 60.79 61.71 63.44
USD/EURO* 0.94 0.95 0.91


10 Year G-sec movement


Corporate Bond Yield


Corporate AAA, AA Bond Spreads


Economic Events Calendar

December 12, 2016
  • US Treasury Budget, November
  • China's Industrial Production, November
  • China's Retail Sales, November
  December 28, 2016
  • US Pending Home Sales Index, November
December 13, 2016
  • US Import and Export Prices, November
  • UK Consumer Price Index, November
  • UK Producer Price Index, November
  • Japan's Tankan Survey, Q4 2016
  December 29, 2016
  • US International Trade in Goods, November
December 14, 2016
  • US Federal Open Market Committee (FOMC) Meeting Announcement
  • US FOMC Forecasts
  • US Producer Price Index - Final Demand, November
  • US Retail Sales, November
  • US Industrial Production, November
  • US Business Inventories, October
  • Eurozone Industrial Production, October
  • UK Labour Market Report, November
  • India's Consumer Price Index Inflation, November
  December 30, 2016
  • US ISM Chicago PMI, December
December 15, 2016
  • US Consumer Price Index, November
  • US Philadelphia Fed Business Outlook Survey, December
  • US Empire State Manufacturing Survey, December
  • US Housing Market Index, December
  • US Treasury International Capital, October
  • Bank of England's (BoE) Monetary Policy Announcement & Minutes
  • UK Retail Sales, November
  January 2, 2017
  • Eurozone Markit Manufacturing PMI, December
  • India's Nikkei Manufacturing PMI, December
December 16, 2016
  • US Housing Starts, November
  January 3, 2017
  • US ISM Manufacturing PMI, December
  • US Markit Manufacturing PMI, December
  • US Construction Spending, November
  • UK Markit Manufacturing PMI, December
December 19, 2016
  • Bank of Japan's Monetary Policy Announcement
  January 4, 2017
  • US FOMC Meeting Minutes
  • Eurozone Markit Services & Composite PMI, December
  • Eurozone Consumer Price Index, December
  • UK Markit/CIPS Construction PMI, December
  • UK Net Consumer Credit, November
December 21, 2016
  • US Existing Home Sales, November
  • Japan's All Industry Index, November
  January 5, 2017
  • US ISM Non-Manufacturing Composite, December
  • US ADP Employment Change, December
  • US Markit Services PMI, December
  • Eurozone Markit Retail PMI, December
  • Eurozone Producer Price Index, November
  • UK Markit/CIPS Services & Composite PMI, December
December 22, 2016
  • US GDP (Final), Q3 2016
  • US Durable Goods Orders, November
  • US Personal Income and Outlays, November
  • US Chicago Fed National Activity Index, November
  • US FHFA House Price Index, October
  • US Leading Indicators, November
  • UK GDP (Final), Q3 2016
  January 6, 2017
  • US Employment Report, December
  • US Durable Goods Orders, November
  • US Trade Balance, November
  • US Factory Orders, November
  • Eurozone Economic Sentiment, December
  • Eurozone Consumer Confidence, December
  • Eurozone Retail Sales, December
December 23, 2016
  • US New Home Sales, November
  • US Consumer Sentiment, December
  January 7, 2017
  • India's First advance GDP estimate, 2016-17 (April-March)
December 26, 2016
  • Japan's Consumer Price Index, November
  • Japan's Household Spending, November
  • Japan's Unemployment Rate, November
  January 9, 2017
  • US Consumer Credit, November
  • Eurozone Sentix Investor Confidence, January
  • Eurozone Unemployment Rate, November
  • UK Halifax House Prices, December
December 27, 2016
  • US Consumer Confidence, December
  • US S&P Corelogic Case-Shiller HPI, October
  • Japan's Industrial Production, November
  January 10, 2017
  • US Wholesale Inventories, November
  • Japan's Consumer Confidence Index, December

US Fixed Income Markets - Overview

US bond prices fell sharply in November, with the yield of the 10 year benchmark paper settling at 2.37% on November 30 as against 1.83% on October 31. Yields rose sharply following the US Presidential election outcome on expectation that US President-elect Donald Trump would adopt a range of stimulative economic policies, including tax cuts and increased infrastructure spending. Prices dipped further on growing worries that US inflation will gain traction under Trump's proposed policies. Some positive US economic indicators such as housing starts, retails sales, and import prices raised anticipation of a US interest rate hike by the Fed, thereby contributing to a decline in treasuries. Demand for safe haven treasuries was also dented by comments from US Fed Chief Janet Yellen, and after minutes of the latest meeting of the US Fed showed that policymakers appeared confident that the US economy was strengthening enough to warrant tightening of monetary policy soon.

US 10 Year Govt. Bond Yield


Learning Centre - Some RBI measures to drain excess funds

As a result of the government's demonetisation decision, banks have seen a massive surge in deposits as consumers have returned the older high denomination currencies, in line with the government's directive. This has resulted in a significant liquidity surplus in the banking system, as lenders have seen their coffers brim with funds. To manage liquidity, the RBI had stepped up its reverse repo auctions to provide banks with opportunities to park idle cash. But the efficacy of reverse repo auctions is limited by the stock of government securities available with the RBI as funds are parked with the central bank by lenders in exchange for receiving an equivalent amount of government securities.


The RBI concluded that a more effective measure than the reverse repo auction was needed, and therefore hiked the cash reserve ratio (CRR) of banks to 100% of Net Demand and Time Liabilities (NDTL). The higher CRR is applicable on incremental deposits raised between September 16 and November 11. That would mean that deposits of nearly Rs 3 lakh crore that accrued to banks during this period will be impounded by the central bank. This helps arrest the rise in government bond prices and sucks away excess liquidity permanently. It is considered a blunt policy tool as liquidity can be drained at no cost to the RBI whereas the central bank has to pay the reverse repo rate of 5.75% when conducting operations. However, the move to hike CRR was deemed a temporary one, and the RBI said it would monitor the liquidity situation actively since making the announcement on November 26.

MSS bonds

The government decided to revise the ceiling for issue of securities under the Market Stabilisation Scheme (MSS) to Rs 6 lakh crore. The earlier limit was Rs 30,000 crore. This hike is valid only for 28 days. Under MSS, the central bank will issue cash management bills (CMB). Compared to the CRR which does not fetch any return for the depositing bank, MSS bonds, which are special securities that are issued for the specific purpose of draining liquidity, earn a return and qualify for statutory liquidity ratio, or SLR, that banks need to maintain in the form of short-tenured treasury bills and government bonds. They are also tradable in the secondary market. An added advantage is that MSS securities are matched by an equivalent cash balance held by the government with the RBI. Hence, they have only a marginal impact on the government's revenue and fiscal positions compared to issuances of regular government securities. The cost of such interest payment is shown separately in the Budget.

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