RBI Needs To Infuse Liquidity Into The Economy, Axis Mutual Fund’s Sivakumar Says
The Reserve Bank of India must step up liquidity infusion and ensure lower rates, R Sivakumar, head of fixed income at Axis Mutual Fund, said.
While the RBI has cut its policy rate twice by 25 basis points each in 2019, bond yields have not fallen as liquidity conditions have remained tight. This should be unacceptable to the central bank, Sivakumar said.
“We have seen virtually the entire yield curve at or above the level we were before two rate cuts. That should be read as unacceptable by the RBI,” Sivakumar told BloombergQuint, stressing on the need of transmitting lower rates to corporate and retail borrowers.
Should lower rates not transmit effectively, weakness in the economy may persist, he cautioned.
Industrial output contracted in March, marking the first fall in 21 months, showed data released by the government on Friday. The weakness in industrial output could mean that GDP growth in FY19 may fall below the earlier forecast 7 percent.
FII Flows Into Bond Market
Data from the National Securities Depository Ltd shows that foreign portfolio investors have been sellers in the debt markets. FPIs sold Rs 5099 crore in April and another Rs 4552 crore in May so far.
Will this impact yields further?
The bond market is domestically driven and doesn’t really move as much on foreign flows as the Indian equity market does, Sivakumar said.
- Not all non-banking financial companies are under stress
- Does not see systemic crisis in NBFC
- Pressure on the real economy may persist due to liquidity concerns
Watch the full interview here: