Gold Silver Reports — Patel as Inflation Hawk May Spook Bond Markets in Short Term — The bond markets may worry at least for the time being about the prospects of a rigid stance by the RBI under Urjit Patel, the 24th governor. The benchmark yield may rise 5 to 10 basis points, pushing prices down when the markets open on Monday, reacting to the news of the new governor’s appointment, dealers said. It closed at 7.10% on Friday .
In the past one month, the benchmark yield had dipped about 25 basis points, pushing prices up amid providing sufficient liquidity in the system. Also, bond investors expected aggressively cut rates in the coming days with a new governor at the helm. Faster rate cuts are perceived to be pushing the country’s economic growth up .
But Patel does not hold out hope for the same, for now at least.“We are not sure how he will prioritise the need of liquidity management as he gave a cold shoulder to appeals for better liquidity in earlier occasions as deputy governor,“ said a treasury head from a large foreign bank .
Investors are also apprehensive of liquidity management or cash in the banking system, now seen as a key to effect rate cut benefits. Since January last year, it was evident that mere policy rate cuts did not really pass on benefits of the actions to end con sumers as banks were seen struggling to manage daily liquidity positions .
“Initially, bond yields may rise as Patel’s perception as an inflation hawk, averse to cutting rates, would haunt investors,“ said a treasury head from another large foreign bank. “But, things will stabilise after a few days as ultimately the monetary policy committee (MPC) will rule the roost in taking policy decisions,“ the person said .
Patel is known for his recom mendations on adopting consumer price inflation as the benchmark and a trajectory to attain it.
The six-member MPC will decide on in terest rates under the new monetary policy framework, breaking away from the traditional practice that the governor’s decision on it is final. Globally, most central banks take policy decisions in this fashion, be it the US Federal Reserve or others. In the coming days, credit policy decisions will be taken in the new MPC format.
“If that is the case, there will be six people sitting together and deciding what the path of interest rates will be. I think we should expect them to take an independent decision and I am sure they will,“ said Raghuram Rajan on August 9, the day RBI announced its bi-monthly policy. — Neal Bhai Reports