Bonds may trade in 8.45-8.65% range: Ananth Narayan, Standard Chartered Bank

Ananth Narayan Regional Head, Fixed Income, South Asia Standard Chartered Bank

This will likely be an eventful week for Indian money markets. India’s October IIP will be released on Monday (expect -0.5-1%, but sources were earlier quoted calling it at -5%). Coming on the back of a poor 6.9% GDP growth in Q2, and exports being revised downwards, a negative IIP should be a cause for worry.

The FOMC statement on Tuesday will likely be largely unchanged, against the backdrop of improved economic data from the US, but persisting uncertainties from Europe. Europe will likely continue to dominate global headlines. Wednesday will see India WPI for November — we expect a welcome sub 9% print. We expect WPI to trend down, leading up to 6.5% to 7% by March 2012. Liquidity remains tight with further advance tax outflows next week.

In Friday’s mid-quarter review of monetary policy, expect the RBI to announce steps to ease liquidity by way of further OMO bond buyback. There could be a cut in SLR alongside, but for CRR and Repo rate cuts, the industry will likely have to wait longer — RBI will likely wait for confirmation that inflation is indeed trending down.

OMO will continue to support bond prices — welcome support, since the original fiscal deficit target will unlikely be met.