Debt Indices	PTP Returns (%)
	1 Month	3 Months
CRISIL Hybrid 35+65 - Aggressive Index	-2.37	6.25
Crisil Composite Bond Fund Index	0.01	1.43
CRISIL Dynamic Gilt Index	-0.11	1.33
CRISIL Liquid Fund Index	0.64	1.91
CRISIL Hybrid 85+15 - Conservative Index	0.55	2.54
Crisil Short Term Bond Fund Index	0.53	1.98

Returns are as of May 31, 2018 and are annualised for above one year

Debt Indicators	31-Aug-18	31-Jul-18	29-Jun-18
Call Rate	6.45%	6.00%	6.30%
NSE Mibor	6.45%	6.25%	9.25%
3 M CP	7.78%	8.05%	7.60%
5 Yr Corp Bond	8.66%	8.59%	8.69%
10 Yr Gsec	7.95%	7.77%	7.90%
Reverse Repo	6.25%	6.00%	6.00%
Repo	6.50%	6.25%	6.25%
Bank Rate	6.75%	6.50%	6.50%
CRR	4.00%	4.00%	4.00%

 

Interbank call money rates remained below the repo rate for most of the month owing to comfortable liquidity in the system. However, some stress was seen in the rates owing to outflows related to indirect tax payments.

Gilts ended lower in the month with yield on the 10-year benchmark 7.17% 2028 paper ending at 7.95% on August 31, 2018 compared with 7.77% on July 31, 2018. Prices fell sharply owing to persistent weakness in the rupee and an uptick in crude oil prices. The sharp fall in the rupee led to a panic about massive outflows of overseas funds from the Indian sovereign debt market. Bonds were also negatively impacted as rise in global crude oil prices stoked inflation worries and possibility of further interest rate tightening. Investors also remained cautious ahead of the release of the RBI policy meeting minutes. According to the minutes, Monetary Policy Committee (MPC) members cited possible risks of inflation in the second half of the year as one of the key drivers for raising interest rates in August. Gilts fell further on the back of supply pressure amid some weekly bond auctions.

However, losses were trimmed after the RBI's commentary, in its monetary policy review, was not as hawkish as expected, leading market players to believe that the next rate hike would be some time away. Further, the apex bank retained its monetary policy stance at 'neutral'. Gilts were buoyed further after the RBI announced its decision to transfer Rs 50,000 crore as surplus to the government, thereby soothing concerns over the government's strained fiscal situation. Bonds also rose on hopes of the RBI carrying out a fresh round of open market bond purchases.

Key developments in the month: The RBI paid Rs 50,000 crore dividend to the government for the fiscal year ended June 2018. Securities and Exchange Board of India has cut the timeline for listing of debt securities to six days from 12 to make the existing process of issuance of such securities simpler and cost effective. It has also allowed investors to place multiple bids in a private placement issue on a debt basis and allowed depositories to act as facilitators to ease the process of issuance of securities on the electronic book platform. Further, it plans to prepare the framework for 'on tap public issue of bonds'.

Banking-related developments:

• The RBI has announced steps to strengthen the internal ombudsman mechanism in Indian banks.
• The RBI said banks will witness a further deterioration in their non-performing assets owing to the economic situation prevailing in the current fiscal.
• It has allowed urban co-operative banks to invest in non-SLR securities in the secondary market with non-bank participants

Macro Forecast

CRISIL Centre for Economic Research (CCER) expects 10-year G-sec yields to settle in the range of 7.6-7.7% by fiscal 2019 end, compared with 7.6% at fiscal 2018 end. The upside to yields is on account of fiscal slippage concerns, tightening liquidity, risk emanating from rising oil prices and higher inflation, rising international yields and higher supply of State development loan (SDL) bonds.