Inflation data from the CPI index considered more carefully in global monetary policy is ready  with the CSO declaring data from tomorrow ( see last paragraph)

However as we pointed out in a post minutes ago, the Fixed income yields are almost tentatively poised at 8.2% with the markets a primary reason for the tentativeness as the urge to speculate comes to town on Indianomics. India's OMOs last week of INR 120 bln and the CRR chop to be worth INR 360 bln has not materialised, the inflation at a comfortable below 7% figure may rear its head again soon as manufactured goods indices are not dipping that well, staying nearly 8%

The 10 year at 8.2 % ansd the 12 and 15  year at 8.52% and 8.55% show the yield curve having steepened bu twith no CDS and swaps market with spread unnecessarily compensating to junk levels without liquidity for the market makers to fine tune the action, FIIs are unlikely to come bareback into a new Asian market. Even new bond issue bankers are getting a quarter of the fee last year.

According to Arjun P in the DNA analysis

Liquidity tightened by `56,000 crore last week with the system borrowing `167,000 crore from RBI on a daily average basis. The rising liquidity pressure led to the RBI buying government bonds in OMOs.

That's INR 560 bln out of the window even as banks move rates down and RBI borrowing now all corrected to 9.5% the designated MSF by RBI getting higher than India's high trade deficit and nearer 5 times banks could have released from their Central Bank acocunt after the CRR cut, almost all of it could easily be explained as amounts banks have in excess deposits with the RBI. Banks are moving to cut loan rates, having made affirmative stateements and SBI having seen as reducing Edu loan rates in the press.

The point is that the rates are precipitously poised on yield as rate cuts are months away and moves down could hit growth badly while yields moving up back to 8.5% ont he 10 year bond will necessitate the overtly stretched government finances to arrannge for another OMO  

Last but not the least Oil has moved up to $120 levels one spike to $150 likely and 12% of our supply in Iranian oil in as mucha  threat as also half our rice exports and many in tea and fruita and vegetables to Iran. The Afghanistani Oil we have planned for also travels thru Iranian ports huh! wow.

Inflation data on the CPI series is in for the first time as a yearly series becomes available from Tomorrow, and likely coming in near 8% ( watch the lovely rural vs urban vs composite chart at livemint.com) , instead of the feared 10% unless there is another spike in January data. As of December the rural indices have moved to 115 and the composite 113.9 data available from January 2011 when rural was 107 and composite 106. The urban sub index started from 104 in Jan 2011 and ended last year at 112.4

 

Posted via email from The India Investment Post