Yield curve to ease on RBI measure to reduce MSF rate: MFs
Mumbai: A day after RBI cut marginal standing facility (MSF) rate by 50 basis points, fund managers today said the yield curve will ease due to improved liquidity situation.
They also opined that yield on the short-term bonds would ease more as compared to long-term bonds, which will be driven by changes in the repo rate.
"Post RBI decision to reduce MSF rate by 50 basis points, the yield curve at the shorter-end is likely to ease in the near future. However, yield of the long-term bonds will depend more on the inflation number and consequent action by the RBI on the repo rate front in the next policy review," Head of Fixed Income of Sundaram Mutual, Dwijendra Srivastava, told PTI here.
He also said that liquidity situation in the market would also drive the yield curve in the future.
"Around Rs 52,000 crore of cash management bills are due for redemption from October 14 to October 22. If this money comes to the market, then liquidity situation will improve," Srivastava said.
In its bid to further ease liquidity situation, RBI yesterday reduced the key overnight interest rate, MSF by 50 basis points to 9 percent with immediate effect.
Earlier, the apex bank had reduced MSF rate by 75 basis points in its mid-quarter policy review on September 20, indicating gradual reversal of liquidity tightening measures announced in July to contain volatility in rupee.
Another fund manager also echoed similar sentiment.
"The impact of RBI reduction of MSF rate will be positive on the yield curve. Yield curve at the shorter-end is likely to get impacted more. The longer-end will also come down but may benefit more in case there is no repo rate hike in the next policy," Head of Fixed Income of Reliance Mutual Fund, Amit Tripathi said.
Tripathi pointed out that reduction in MSF rate indicated RBI was comfortable with the current currency environment and doesn't want the short-term rates to remain high during festive season when demand for credit is likely to be high.
On possible tapering of US bond-buying programme and its consequent impact on rupee, Tripathi said it may not have that kind of negative impact seen during July-August period as macro scenario has improved in terms of current account deficit and the RBI would have some additional buffer in terms of FCNR(B)-led inflows.
Meanwhile, a senior Fund Manager of Quantum Mutual Fund said the short-term rates have the potential to drop more than 50 basis points by October, 2013 from the current levels.
"Short term rates have the potential to drop by more than 50 bps by October, 2013 end from current level," Senior Fund Manager (Fixed Income) of Quantum Mutual Fund, Arvind Chari said.
He also added that yield in 2-5 year bond segment would also likely to be eased in the future.