US brokerage Bank of America Securities has maintained that the Reserve Bank of India (RBI) will leave rates unchanged next week, recognising growth-focused and Capital expenditure-driven fiscal growth, which, while posing huge price pressure and interest rate risks later, poses exorbitant price pressure and interest rate risks now.
In the wake of a significant jump in bond yields following the Budget, the RBI's rate-setting body, the Monetary Policy Committee (MPC), will begin deliberations next Monday and announce policy decisions on Wednesday (February 9). To combat inflation, almost all major central banks are raising interest rates. Even though bond yields have been trending upward for months, the main repo rate has been at 4% since May 2020, an all-time low.
Despite stronger fiscal support and faster rate hikes projected from the US Federal Reserve, the firm has maintained its opinion that the RBI will only take a gradual policy normalisation route for the time being. The firm sees the entire domestic and external climate as unfavourable for the bonds market, barring some efforts to stabilise rates, which have already gone above 2019 levels and are sniffing at the 6.9% barrier after the Budget unveiled record borrowing intentions for the upcoming fiscal year.