InvestorQ : What does the US yield curve inversion mean for India?
sarah Leo made post

What does the US yield curve inversion mean for India?

Rashi Mehra answered.
11 months ago

How to interpret the yield curve inversion? Remember, the Fed has just started its rate hikes in March and proposes to raise rates by another 150 bps in 2022 itself. Yield curve inversion indicates that investors are more confident of the short term than the long term. The bet is that spike in interest rates by the Fed would spike bond yields at the short end of the yield curve, but longer yields may be slow to move due to GDP slowdown worries.

In a way, that could be good news for India. It tallies with RBI’s perception that rate hikes are not the only answer. Even in Feb-22 policy, RBI focused on growth over prices. Yield curve inversion shows that hawkish policy comes with costs; since you forsake growth for price stability. What does that mean for Apr-22 RBI Monetary policy? There may be a 25 bps rate hike, but the accommodative stance and growth focus may still continue for now.