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Fixed Income And Currency Market
6 Dec 2020
Higher inflation is key to containing fiscal deficit going forward, what happens to bond yields then?
RBI is maintaining an ultra-accommodative monetary policy to negate the effects of covid 19 pandemic that has led to 2 consecutive quarters of negative GDP growth in fiscal 2020-21. While growth collapsed, inflation has risen sharply to well over 7% levels, far above the RBI target of 4%. The forecast for inflation is around 5% in the 1st half of fiscal 2021-22 while growth will rebound considerably, largely on base effect. RBI is willing to live with real interest rates of negative 4% for growth to accelerate.
Arjun Parthasarathy
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