Indian interest rates: Yields will depend on how banks resume Gilt buying

In the medium, to long term it will be influenced by how the mandate of MPC is modified to manage influenceable inflation rather than broad headline inflation.

Last one year has been an exceptional year for Indian Interest rates. While Policy rate viz. Repo Rate has been cut by 25 basis points, the official stance of monetary policy is neutral, and market yields have jumped more than 100 basis points. This behaviour could be the function of rising US yields, the hawkish tone of the Monetary Policy committee, fiscal slippage, expected rise in inflation, absence of bank treasury in Gilts market or combination of all the above factors. This has resulted in above average real interest rates in India which are higher than nominal interest rates in