Highlights:
- RBI’s December policy language exhibited a less hawkish tone.
- Liquidity remained in deficit for the fourth consecutive month.
- Government spending and FPI inflows may ease liquidity conditions. However, liquidity is likely to remain tight in accordance with RBI’s “withdrawal of accommodation” stance.
- Combined central and state government borrowings (excluding T bills) increased 15% YoY in 8MFY24.
- In 8MFY24, CD issuances rose ~10% YoY, CP issuances declined ~4% YoY and corporate bond issuances rose ~28% YoY.
- Net FPI debt inflows reached ~USD 5.7 billion in 8MFY24, the highest level in five years – aided by low U.S. interest rates and debt purchases ahead of India’s inclusion in the bond index next year.
- We expect RBI to start rate cuts after Q1 FY25.
- 10Y GSec yield is expected to trade between 7.00-7.25% in the near-term.
