Ind-Ra: Markets to Trade with Positive Bias

Currency and bond markets are likely to consolidate this truncated week after recovering from a weak start to 2016, says India Ratings and Research (Ind-Ra). We expect the bond market to price in the expectation of a policy rate cut in the next Reserve Bank of India (RBI) policy of April 2016 and rupee to continue to draw comfort from global risk sentiments. For the week, we expect bond yield to stay in the range of 7.46%-7.57%, and the currency to trade in the range of 66.20-67.05/USD.

Domestically, the interest rates on various small saving schemes were brought down last week, in a bid to rationalise interest rate structure and remove insensitivity of small saving rates to prevailing policy rate. This is likely to smoothen the monetary policy transmission process by banking channels. Ind-Ra believes that with the union government sticking to the fiscal deficit road map, soft retail inflation have set the stage for the Reserve Bank of India to go for a rate cut in its April 2016 policy.

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