Nilesh Shah, Deputy Managing Director, ICICI Prudential Asset Management Company
The Reserve Bank of India (RBI) positively surprised the debt market by announcing a 25 basis point cut in reverse repo rate and repo rate. This rate cut, along with the promise of maintaining conducive rate environment, augurs well for the soft interest rate regime going forward. The size of the government's borrowing programme for FY10 was keeping market yield on 10-year paper significantly above the repo and reverse repo corridor. The reassurance by RBI to carry out the large borrowing programme in a non-disruptive manner will calm the nerves of debt market.
RBI has promised to introduce exchange-traded interest rate futures and Strips in the near future. This will meet the long-pending need of market to provide for hedging of interest rate risk. The deferment of higher capital adequacy for NBFC sector reflects the current equity market environment, which makes raising of equity capital difficult. The deferment of norms for foreign banks' presence in India is also reflective of the current global environment. The tightening of securitisation framework shows RBI's commitment to pro-actively contain the risk. The extension of refinance facility again reaffirms RBI's commitment to provide adequate liquidity conducive for price stability and growth. RBI has targeted at bringing transparency in the pricing of loans and improving credit flows in the economy.
The debt market is likely to take solace from RBI's promise of maintaining adequate liquidity and managing the governments borrowing programme in a non-disruptive manner.
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