Further Tightening Likely
Overall, the policy seemed slightly hawkish on the margin and indicated that there may be space for further tightening, although it will depend on the inflation trajectory and the terminal rate for the US Federal Reserve.
RBI governor also mentioned that market participants must wean themselves away from the overhang of liquidity surpluses which means market should be prepared for further tighter liquidity condition.
Post the policy announcement bond yields hardened a bit. With corporate bonds spreads still being very tight, we may witness some increase going forward. We prefer the short-medium term part of the yield curve.
Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance
