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CRISIL Market Intelligence & Analytics (MI&A) expects two policy rate cuts by the six-member monetary policy committee (MPC) this fiscal year, starting in October 2024 at the earliest.
The MI&A team, comprising economists and fixed-income analysts, noted that amid strong economic growth momentum, the MPC aims to see a durable reduction in inflation to 4 per cent to ease monetary policy.
“It will monitor monsoon in the next two months, which is critical for easing food and overall inflation. Other extreme weather events and geopolitical shocks will also be monitored,” the team said in its report “RateView”.
The MPC kept policy repo rate unchanged at 6.50 per cent in its June meeting, while maintaining its stance of withdrawal of accommodation.
Giving its one-month outlook and three-month on interest rates, the MI&A team expects the 10-year Government Security (G-Sec: 7.10 per cent GS 2034 ) yield to hover in the 6.95-7.05 per cent range in July and September 2024.
The yield on the 10-year benchmark government security opened June at 6.95 per cent and closed at 7.01 per cent, up 2 basis points (bps) from its May close of 6.99 per cent.
One-month view
In July, domestic G-Sec yields are likely to be influenced by factors such as the upcoming Union Budget, FPI flows, crude oil price movements, the rupee-dollar equation, the outcome of the US Federal Open Market Committee (FOMC) meeting to be held at the end of July, and domestic inflows into the debt market.
Three-month view
The 10-year G-sec yield is expected to react to FPI flows, crude prices, global interest rates, the CPI inflation print, RBI MPC and FOMC rate decisions, global cues, and liquidity concerns.
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