It is time to shift focus to growth............
The release of GDP data for Q3 at 6.1% is sending strong negative signals into the ecoomy. This number is sharply down on sequential basis with Q2 print at 6.9%. It is across-the-board under performance with growth in manufacturing sector dismal at 0.4%. It will now be very difficult to meet the FY12 growth target of 6.9%. Over all, FY12 will end with lower than budgeted growth target and higher than budgeted fiscal deficit target.
It is time for the Government and RBI to come together to execute the rescue act soon. RBI is prepared for shift into growth supportive monetary stance subject to stability in rupee and crude oil price. Now, risk of rupee weakness is not in the radar while extended rally in crude oil is not ruled out.
Now, growth-inflation dynamics is mixed. The risk of downtrend in growth momentum into 6.5% in FY13 is much higher than uptrend in headline inflation over 7%. Therefore, the monetary policy stance has to shift from anti-inflation to pro-growth aggressively; not through baby-steps approach.
It is possible that we might see 25-50 bps rate cut along with 50 bps CRR cut on 15th March subject to NYMEX crude trading below 110.
What is the expectation in bond yields in the short term? The first pit stop will be for 1 and 10Y yield to meet around 8%; thus squeezing the negative spread to par. The next pit stop will be downtrend in 1Y yield into 7.75% while 10Y bond yield stays steady around 8%; to build tenor spread of 25 bps. The final pit stop for FY13 will be for stability in 1Y yield around 7.5% and 10Y bond yield around 8%; to build 50 bps tenor spread.
The strategy therefore is to stay invested in 10Y bond on weakness into 8.25-8.35% and not to chase extended gains into 8.05-7.95%. It is also good to stay received in 1Y OIS at 8.20-8.30% and play end-to-end in 5Y at 7.10-7.45% (allowing extension into 7.0-7.55%).
Good luck..............Moses Harding
Moses Harding
The release of GDP data for Q3 at 6.1% is sending strong negative signals into the ecoomy. This number is sharply down on sequential basis with Q2 print at 6.9%. It is across-the-board under performance with growth in manufacturing sector dismal at 0.4%. It will now be very difficult to meet the FY12 growth target of 6.9%. Over all, FY12 will end with lower than budgeted growth target and higher than budgeted fiscal deficit target.
It is time for the Government and RBI to come together to execute the rescue act soon. RBI is prepared for shift into growth supportive monetary stance subject to stability in rupee and crude oil price. Now, risk of rupee weakness is not in the radar while extended rally in crude oil is not ruled out.
Now, growth-inflation dynamics is mixed. The risk of downtrend in growth momentum into 6.5% in FY13 is much higher than uptrend in headline inflation over 7%. Therefore, the monetary policy stance has to shift from anti-inflation to pro-growth aggressively; not through baby-steps approach.
It is possible that we might see 25-50 bps rate cut along with 50 bps CRR cut on 15th March subject to NYMEX crude trading below 110.
What is the expectation in bond yields in the short term? The first pit stop will be for 1 and 10Y yield to meet around 8%; thus squeezing the negative spread to par. The next pit stop will be downtrend in 1Y yield into 7.75% while 10Y bond yield stays steady around 8%; to build tenor spread of 25 bps. The final pit stop for FY13 will be for stability in 1Y yield around 7.5% and 10Y bond yield around 8%; to build 50 bps tenor spread.
The strategy therefore is to stay invested in 10Y bond on weakness into 8.25-8.35% and not to chase extended gains into 8.05-7.95%. It is also good to stay received in 1Y OIS at 8.20-8.30% and play end-to-end in 5Y at 7.10-7.45% (allowing extension into 7.0-7.55%).
Good luck..............Moses Harding
Moses Harding
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