(In March 14 story, corrects rupee forecast period to '12-18
months', from 'year-end', in paragraph 12)
By Dharamraj Dhutia
MUMBAI, March 14 (Reuters) - Indian fixed-income and
foreign-exchange markets are unlikely to see any major fallout
after the collapse of a U.S. lender dented risk sentiment, a
senior treasury executive at DBS Bank said on Tuesday.
"We generally have an FX fallout if there is a change based
on any country-specific nuances," said Ashhish Vaidya, managing
director and head - treasury & markets at DBS Bank India.
"The dollar index is not stretching as the typical risk-off
scenario. Unless commercial activity drops across the world,
which does not seem to be the case, we may not see any major
impact."
The U.S. banking regulators said depositors at Silicon
Valley Bank (SVB), which shuttered on Friday, would have access
to their funds, easing fears that startups would struggle to pay
their employees this week.
The bank's closure had followed interest rate hikes that
hurt its startup customers and a failed capital raise attempt,
which led to cash withdrawals.
U.S. yields plunged, led by the two-year part of the curve,
as expectations of interest rate hikes from the Federal Reserve
went from aggressive to a much-smaller 25-basis points hike,
with some also expecting status quo. "We may even see similar expectations getting built in for
Indian rates. As a base case, we expect an outside chance of a
25-bps hike in April, but nothing beyond that," Vaidya said.
The odds of a 50-bps hike by the Fed had jumped after their
remarks on inflation last week. That had also led to some
worries over the Reserve Bank of India's (RBI) terminal repo
rate.
The RBI has hiked rates by 250 bps this financial year to
6.50%.
Vaidya expects the benchmark 10-year bond yield to trade in the 7.25%-7.50% range in the near term, with the
focus returning to demand-supply and inflation dynamics.
"The sell-off in bonds that was supposed to happen is
already done ... If we look at (the time frame of) a couple of
years, then we are near peak rates. On a longer-term basis,
these would be peakish rates."
Vaidya expects the Indian currency to appreciate to around
78-79 per dollar in the next 12 to 18 months, thanks to the
improving trade deficit.
The rupee was at 82.49 on Tuesday and was
marginally higher for 2023.
"Structurally, exports are picking up and imports will start
coming off. The trade deficit picture would be better," Vaidya
added.
"If (foreign) money returns, then we can look at
strengthening of the rupee in a serious manner."
(Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman)
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