The Reserve Bank of India stated on Thursday that the economy's natural rate of interest has increased since the pandemic and is expected to rise even further. This is primarily due to the growth of potential output, which analysts believe could potentially restrict the ability to implement monetary policy measures. In its monthly bulletin, the RBI discussed the natural rate of interest, which is linked with a full-capacity economy without inflationary pressures. Though unobservable, it guides monetary policy. The central bank anticipated the natural rate at 1.4-1.9% in the fourth quarter of 2023-24, up from 0.8-1.0% in the third quarter of 2021-22.
Top 3 Leads Today
- Don't need CPI at 4% sustainably to change policy stance, says RBI paper.
- Infosys raises FY25 revenue guidance, to up hiring.
- ECB keeps key policy rates unchanged, in line with expectations.
Indian Markets
- Money Markets Minute: The call money market rate ended below the RBI's standing deposit facility rate of 6.25% due to weak demand for funds amid a widening liquidity surplus in the banking system. The one-day call money rate remained at 5.75%, unchanged from Tuesday for two-day loans. The weighted average call rate was 6.47%, down from 6.48% on Tuesday.
- Government Bond Brief: Government bond yields ended mixed. Long-term bonds were slightly lower due to caution ahead of the weekly gilt auction on Friday and the upcoming Union Budget for 2024-25. The 10-year benchmark 7.10%, 2034 bond ended at a 6.97% yield, up from 6.96% on Tuesday. Turnover was ₹636.55 billion, close to Tuesday's ₹649.00 billion.
- Corporate Bond Beat: Yields on three-year corporate bonds fell around 3 bps in the secondary market as mutual funds actively bought papers. Corporate bonds mirrored government bonds, which rose slightly on hopes of US rate cuts by September, increasing expectations of a domestic policy rate cut in December. The yield on the three-year benchmark government security ended at 6.89% at market close.
- Forex Flash: The rupee settled near a one-month low against the dollar due to importers' purchases of the greenback. It closed at 83.6500 per dollar, compared with 83.5825 on Tuesday. After a steady opening, the Indian currency came under pressure from early demand by oil marketing companies.
- Stocks Spotlight: Sharp gains in IT stocks lifted benchmark indices to fresh lifetime highs. The Nifty 50 and Sensex each closed 0.8% higher at 24,800.85 and 81,343.46 points, respectively. Both ended the session at record closing levels, with gains also seen in FMCG, select banks, and financial companies.
International Markets
- US Stocks: All three major indexes declined, with the blue-chip Dow falling the most, ending a string of record closing highs. Equities fell on Thursday, reversing early gains as investors shifted away from high-priced mega-cap growth companies and the second-quarter results season intensified. The Dow Jones Industrial Average sank 1.29% to 40,665.02, the S&P 500 slid 0.78% to 5,544.59, and the Nasdaq Composite dropped 0.7% to 17,871.22.
- Treasuries: On Thursday, benchmark 10-year treasury yields jumped 4.4 basis points to 4.19%, while interest rate-sensitive two-year rates rose 3.4 basis points to 4.463%. The Treasury yield curve steepened, and the yields eased intraday as the increase in unemployment claims reinforced the belief that the Fed would begin reducing interest rates in September. Investors now consider the Fed's interest rate cuts a foregone conclusion.
- Currency: The dollar index rose in response to robust US manufacturing data and jobless data that showed little evidence of a big slowing in employment. The Labor Department said on Thursday that initial claims for US state unemployment benefits jumped 20,000 to a seasonally adjusted 243,000 for the week ending July 13. The dollar index rose by 0.5% to 104.19 after staying near its lowest point in four months on Wednesday.
Trading Trends
Traded volume(in Cr) in corporate bonds by sector and maturity:
| Sectors | 0-1y | 1-3y | 3-5y | 5-10y | >10y |
|---|---|---|---|---|---|
| NBFC | 495 | 903 | 772 | 1196 | 1 |
| Financial Institution | 45 | 533 | 550 | 173 | 10 |
| Private Sector Bank | 205 | 785 | 175 | 104 | - |
| Housing Finance Company | 50 | 486 | 32 | 3 | - |
| Public Sector Bank | - | - | - | 25 | 205 |
Secondary trade details for recently issued primary corporate bonds:
Security Name |
Issue Date |
Trades Since Issue(Cr) |
Avg Yield(%) |
LTY (%) |
|---|---|---|---|---|
| 7.43 NBFID 04JUL34 | 2024-07-04 | 2465.00 | 7.42 | 7.42 |
| 7.39 IRFC 15JUL34 | 2024-07-15 | 1005.00 | 7.40 | 7.40 |
| 7.36 SBI 11JUL39 | 2024-07-11 | 880.00 | 7.36 | 7.35 |
| 7.89 BOM 04JUL29 C 04JUL34 M | 2024-07-04 | 777.00 | 7.90 | 7.87 |
| 7.92 TATA CAPITAL HFL 07JUL34 | 2024-07-08 | 420.00 | 7.92 | 7.91 |
| 8.71 HDB PERP 12JUL34 C | 2024-07-15 | 352.00 | 8.70 | 8.70 |
| 8.1701 ADITYA BIRLA HFL 25AUG27 | 2024-07-12 | 345.00 | 8.18 | 8.18 |
| 8.10 BAJAJ FINANCE 10JUL26 | 2024-07-10 | 295.00 | 8.09 | 8.07 |
| 8.1168 ADITYA BIRLA HFL 15MAY29 | 2024-07-12 | 275.00 | 8.12 | 8.12 |
| 7.98 BAJAJ HFL 09SEP26 | 2024-07-09 | 155.00 | 8.00 | 8.00 |
| 8.23 SUNDARAM FINANCE 05JUL34 | 2024-07-05 | 90.00 | 8.22 | 8.22 |
| 8.08 KMPL 21OCT27 | 2024-07-15 | 75.00 | 8.10 | 8.10 |
| 7.8650 LICHSGFIN 20AUG26 | 2024-07-12 | 60.00 | 7.87 | 7.87 |
| 10.50 SCNL 04JAN27 | 2024-07-04 | 56.44 | 11.61 | 11.50 |
Source: Harmoney data analytics
Events This Week
July 19, Friday:
- US State Employment and Unemployment for June.
- India FX Reserves for Jul 8 week.
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