India's bond, fx market seen rangebound in 2023 as risks priced in – HDFC Bank treasurer

A customer walks past an advertisement for a foreign currency exchange facility at a bank in Mumbai
A customer walks past an advertisement for a foreign currency exchange facility at a bank in Mumbai August 19, 2013. REUTERS/Danish Siddiqui/Files

MUMBAI, Feb 3 (Reuters) - India's debt and forex markets could have a relatively calm year with rangebound moves as most global and domestic risks are factored in, although greater clarity on most parameters will emerge from April, HDFC Bank's treasurer told Reuters on Friday.

"This year we could see much more rangebound movements in the currency and bond market as well as the banking system liquidity," said Ashish Parthasarthy, treasurer at the country's largest private lender.

"My prediction is that both... will remain stable because geopolitical risks are known."

According to Parthasarthy, with the markets having largely factored in the U.S. Federal Reserve's actions, there would be clarity on where the Reserve Bank of India (RBI) stands in its policy cycle after the February meeting.

The markets have also largely factored in a 25-basis-point (bps) rate hike by the RBI's Monetary Policy Committee next week, he added.

Parthasarthy expects the benchmark 10-year bond yield to stay in a broad range of 7.20-7.50% over the next six months, compared to the 7.29% currently.

There could be a downward move if U.S. Treasury yields slide, especially if views of a Fed rate cut this year become more prominent, he said. On the other hand, a move towards 7.50% cannot be ruled out amid excess supply pressure because of the government's borrowing plan, he added.

The 10-year bond yield had dropped to 7.24% in intraday trades on Thursday after the federal government said it aims to gross borrow a less-than-expected 15.43 trillion rupees ($187.54 billion) through the sale of bonds in FY24, starting in April.

Depending on how demand-supply dynamics play out in the debt market, there is a possibility that the RBI may have to resort to bond purchases through open market operations in the second half of FY24, Parthasarthy said.

He expects the rupee to stay in an 81-83.50 range against the dollar for a "large part" of this year and dollar inflows to start pouring into India, pushing forward premiums higher and ultimately benefiting the rupee.

However, once the rupee appreciates towards 81 levels, the RBI will start building its forex reserves to neutralise the impact of cash liquidity and maintain external account stability, the HDFC Bank treasurer said.

The RBI has already resorted to buying dollars as the rupee has stabilised, forex market participants have said. Forex reserves rose to a near-six-month high of $573.7 billion in the week through Jan. 20.

($1 = 82.2750 Indian rupees)

Reporting by Siddhi Nayak and Swati Bhat; Editing by Janane Venkatraman

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