Yield curve to ease on RBI measure to reduce MSF rate: MFs

A day after RBI cut marginal standing facility (MSF) rate by 50 basis points, fund managers today said the yield curve will ease due to improved liquidity situation.

 

They also opined that yield on the short-term bonds would ease more as compared to long-term bonds, which will be driven by changes in the repo rate.

 

"Post RBI decision to reduce MSF rate by 50 basis points, the yield curve at the shorter-end is likely to ease in the near future. However, yield of the long-term bonds will depend more on the inflation number and consequent action by the RBI on the repo rate front in the next policy review," Head of Fixed Income of Sundaram Mutual, Dwijendra Srivastava, told PTI here.

 

He also said that liquidity situation in the market would also drive the yield curve in the future.

 

"Around Rs 52,000 crore of cash management bills are due for redemption from October 14 to October 22. If this money comes to the market, then liquidity situation will improve," Srivastava said.

 

In its bid to further ease liquidity situation, RBI yesterday reduced the key overnight interest rate, MSF by 50 basis points to 9 per cent with immediate effect.

 

Earlier, the apex bank had reduced MSF rate by 75 basis points in its mid-quarter policy review on September 20, indicating gradual reversal of liquidity tightening measures announced in July to contain volatility in rupee.

 

Another fund manager also echoed similar sentiment.

 

"The impact of RBI reduction of MSF rate will be positive on the yield curve. Yield curve at the shorter-end is likely to get impacted more. The longer-end will also come down but may benefit more in case there is no repo rate hike in the next policy," Head of Fixed Income of Reliance Mutual Fund, Amit Tripathi said.