The benchmark 10-year bond touched 7.07 per cent on August 11 -the lowest in seven years.
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Financial markets, including stocks, bond prices and the rupee, fell on Monday after Urjit Patel was named as the next Reserve Bank Governor, who is likely to adopt a hawkish stance of not cutting the rates in the near term and is expected to continue with the aggressive clean-up of bad debts of banks. It needs to be seen whether Patel will withstand the pressure to cut rates to spur growth while ensuring that government sticks to their fiscal deficit target.
The rupee closed at 67.1862 against the dollar on Monday, down 0.19% from the previous close of 67.06 and the lowest since July 27, after having fallen to an intraday low of close to 67.2388 during the session. Further sell-off in bonds is not in the making as we expect liquidity to be comfortable even if the FCNR (B) deposits near maturity as it has been continuously reiterated by Rajan that central bank is fully covered on the forex front.
Stating that the job of a RBI governor was not just making monetary policies, Das said the central bank head was also the regulator of banks and non-banking finance companies (NBFCs). “But today’s market movements were non-events as the yields and moved in both directions by an equal measure even last week”.
While Patel is described as the chief architect of the report on the monetary policy framework, it must be noted that the new framework also has a lot of imprint of the incumbent governor Raghuram Rajan, who believes that high inflation and high growth can not co-exist. Once we get some clarity on the MPC, perhaps we will have a better idea of how Indian monetary policy under Urjit Patel’s stewardship will pan out. The new inflation-targeting frame work has a medium-term target of 4% with tolerance for a 2% variance.
Ashutosh Khajuria, executive director, Federal Bank, said, “Markets may have reacted to a lot of global events as the yields on the US Treasuries also rose by 0.06%”.
“His (Patel) appointment is the right decision and is in the interest of the country”.
The setting up of the monetary policy committee will be one of Dr Patel’s first tests as Rajan has suggested that the next monetary policy review, due in October, could be conducted under the MPC framework.
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The three government nominees will be short-listed by the search-cum-selection committee headed by the cabinet secretary.
