No Surprises: RBI to maintain status quo on rates

financialexpress.com:

‘It is a truth universally acknowledged that a Central Bank in possession of well-behaved Inflation Trajectory must be in want of a benign Global Context.’ Jane Austin might not have written those exact words but the sentiment resonates as we approach the December 2023 Monetary Policy Committee (MPC) decision. Since, their last meeting in October 2023, much has changed, yet not so much.

Problems with rising Tomato prices have been replaced by similar concerns regarding Onion prices. Likewise, escalation of the Israel Hamas situation has supplanted the long-drawn Russia Ukraine conflict. In the meanwhile, 10Year US Treasury yields rose sharply to 5% levels only to come back down to 4.25% between the last policy and now.

Volatility in developed market bond yields reflects the lingering uncertainty regarding the nature of their economic landing. US bond market narrative has been swinging wildly between ‘higher for longer’ policy rates and an economic slowdown leading to hefty rate cuts. At the time of writing, US markets are yet again betting on a monetary policy pivot, hoping to be third time lucky this calendar year. One of the things bolstering their confidence in policy pivot narrative is the lagged effect of past monetary policy actions aided by upcoming favourable base effects. Recent global economic data too is indicating a moderation in both growth and inflation. But the jury is still out on the durability and extent of this moderation. And that means that volatility may remain the norm for global bond markets.

Also Read: Fixed Deposits: Earn up to 8.61% interest on Special FDs

Why should we concern ourselves with global yields? If last MPC is any indication, it will be difficult for RBI to embrace a decisively