The US Federal Reserve may make the first reduction in interest rates by the first half of the next year as it signalled three cuts in 2024, according to analysts.
"The first rate cut in India is anticipated to occur not prior to the Fed rate cut," Jayesh Mehta, country treasurer at Bank of America, said. The expectation is that the first rate cut in the US will be witnessed by March or June.
The median rate forecast for 2024 fell to 4.6% compared with 5.1% in September, according to Fed's economic projections. That implies three rate cuts of 25 basis points each—more than earlier projected. Chair Jerome Powell has said the Fed is prepared to tighten policy if appropriate and it doesn't want to take hikes off the table.
Indian Bond Yields
Some flows through foreign-portfolio-investment bond and FPI equities are expected to be observed by January, according to Mehta.
The Indian government bonds will become part of the JPMorgan Chase & Co.'s Global Bond Index-Emerging Markets from June 28, 2024. The local bonds could hold a maximum weight of 10% in the index, the bank said.
The amount of money flowing into markets depends a lot on China. If China can stabilise its market, there will be a significant increase in funds from emerging markets, according to Andrew Holland, chief executive officer of Avendus Capital Pvt.
"Indian pricing has remained constant and, as a result, Indian yields have largely moved within a 20-basis-point zone," Suyash Choudhary, head of fixed income at Bandhan Asset Management, said. "We continue to anticipate that the movement of Indian yields will be gradual."
Choudhary cited three reasons on why he is bullish on quality fixed-income bond in India:
The global peak in interest-rate cycles as reaffirmed by the Fed.
Developing current-account dynamics in India due to a reset in the services-trade surplus.
India's inclusion in the JPMorgan's emerging markets bond index. "This increases overall international interest in Indian bonds."
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