CRR withdrawal to start from April; inflation to soothe bond markets: Kotak Mahindra AMC

In a bid to restore normal liquidity management operations, the Reserve Bank of India (RBI) on Friday said it will conduct two lakh crore variable rate reverse repo auction on January 15. What does this mean for bond market and borrowers? Lakshmi Iyer, CIO-debt and head product at Kotak Mahindra AMC, spoke to CNBC-TV18 to help decode this.

“It looks like we should see rates upgrades happening in the band of 3.5 to 3.6 in a knee-jerk reaction. Likewise in the two-three year segment also there is an expectation that 10-15 basis points (bps) upward movement seems to be a likely scenario for non-banking financial companies (NBFCs) as well as the other corporates,” she said.

According to her, the next step could be narrowing the corridor between the repo and reverse repo rate. “We have seen a sharp dip in the reverse repo in terms of quantum. As a start of the next step we could see a possible reduction in this corridor which will allow short-term rates to stay perched well above the reverse repo rates which are very natural in a surplus liquidity scenario,” she said.