rbi: Authorities securities yield curve indicating enchancment in long-term financial prospects, says RBI article

The article famous that the yield curve is indicating an upshift in ex ante inflation.

“On the similar time, the truth that the yield curve has turn into steeper and concave reconfirms expectations of tighter financial coverage within the interval forward,” the article said.

The article, which doesn’t signify institutional view, stated the slope of the yield curve steepened with the onset of pandemic-related coverage easing, which has reversed within the current coverage tightening part, the place the RBI has hiked charges by 0.90 per cent in two actions since Could 4.

It defined that it’s the degree and curvature of the yield curve, quite than its slope, that comprise helpful info on market expectations about financial prospects and inflation expectations.

“… The yield curve is concave in comparison with 2019 ranges, indicative of strengthening prospects for the restoration, increased inflation expectations and therefore market expectations of front-loaded financial coverage normalisation,” it stated.

The curvature elevated sharply in the course of the pandemic-related easing and after the Union Funds announcement of a giant market borrowing programme for 2021-22 until the announcement of G-SAP in April 2021, it stated.

As regards the extent, it stated the extent of the yield curve has elevated since 2021 after a steep decline in the course of the pandemic, it stated.

The article makes use of a state house yield-macro mannequin to indicate that in distinction to superior economies, it’s the degree and curvature of the yield curve quite than its slope that comprise helpful info on market expectations about financial prospects and inflation expectations, it stated.

(With inputs from PTI)