A $25 Billion Fund Manager Says Market is Wrong on RBI-Hike Bets

(Bloomberg) -- The growing market wagers about the most aggressive interest-rate tightening in India of any nation in Asia are wrong, according to Aditya Birla Sun Life AMC.

Five-year interest-rate swaps jumped to 5.42% on March 8, the highest in more than a year, reflecting surging expectations of a tighter monetary policy, and were at 5.32% on Monday. “Markets are mispricing quick rate hikes,” said Maneesh Dangi, co-chief investment officer at Aditya Birla.

Dangi, who oversees 1.8 trillion rupees of debt assets ($25 billion), expects the policy rates to remain low for longer as the central bank prioritizes a nascent economic recovery over signs of perking inflation.

He also expects the Reserve Bank of India to keep the banking system awashed with liquidity to support the government’s record borrowing program.

The RBI’s “compulsion is its inability to normalise its policy as markets have not adjusted to higher levels of government borrowings and are naturally demanding much higher term-premium than before,” said Mumbai-based Dangi.

Rate-hike wagers are building around the world as expectations for growth and inflation gain ground. Swap rates are signaling India will see the most rapid tightening of any nation in Asia, according to Standard Chartered Plc.

©2021 Bloomberg L.P.