Estimate 10 year yield at 7.4% over the course of H1 FY2023: Ms. Aditi Nayar, Chief Economist, ICRA

8 Apr 2022 , 03:30 PM

As we had expected, the 10-year G-sec yield breached 7.0% after the policy announcement. We anticipate the 10 year yield to rise to as much as 7.4% over the course of H1 FY2023, as the market’s views on the number and timing of rate hikes crystallise. Even as the Governor hinted at utilizing various tools to manage the government borrowing programme, comments on the yield curve being a public good were missing in his morning speech, suggesting that yields will be allowed to move up gradually.

The MPC’s revised GDP and inflation forecasts of 7.2% and 5.7%, respectively, for FY2023 (with crude averaging at US$100/barrel) are echoed by our own projections (7.2% and 5.6%, respectively, with crude @US$105/barrel). Our projection of the CPI inflation of 6.3% for Q1 FY2023, assumes a full pass through of the pending transmission of the crude price hike to petrol and diesel, without any excise cut.

Our assessment suggests that the estimates of tax revenues made in the FY2023 BE are rather conservative in light of the substantial overshooting that has taken place in FY2022. This offers space for a rollback in excise duties back to the pre-pandemic levels, to moderate the anticipated uptrend in inflation and prevent excessive tightening of policy rates as well as the household budgets and corporate margins.”