Serving the Cause of Public Interest Indian

Transcript:Serving the Cause of Public Interest Indian:
Serving the Cause of Public Interest Indian Actuarial Profession Institute of Actuaries of India 26th Indian Fellowship Seminar Interest Rates – Where are they headed? Interest Rate Guarantees – How to Manage them? Guide: Mr. Sachin Saxena Presenters: Navin Ghorawat Rakesh Kumar 15th December, 2016 Mumbai, India Agenda www.actuariesindia.org 2 Where are the Interest Rates Headed? Historical Interest Rates – Range and Spread Future of Interest Rates – Best Estimate and Alternatives Impact of Demonetization 2. Interest Rate Guarantees and How to Manage them? Why and how guarantees arise? Impact of Guarantees on different Products Management of Interest Rate Guarantees Case Study: Japanese Life Insurance Industry Historical Interest Rates - Range www.actuariesindia.org 3 Historical 10 years G-Sec rates in India Historical Interest Rates - Spread www.actuariesindia.org 4 Comparative 10 years Bond Yield (India, UK,US, Japan and Brazil) Future Interest Rates – Best Estimate www.actuariesindia.org 5 Reasons for Interest Rates falling to 4.5-5.5% Modi Govt. View: Target Inflation of 4% and Target Real Yields of 1.25-2% RBI Stance: Change of Governor, Supporting Govt. view Weather (Monsoons): Good Monsoons have lowered CPI Fiscal Deficit and Govt. Budget – Higher tax revenues, Income Disclosure Scheme, Disinvestment Proceeds Sluggish Growth (as the IIP suggests) Stable Currency – India attracting capital flows as a safe haven Future Interest Rates - Alternative www.actuariesindia.org 6 Reasons for Deviation from Best Estimate Weather: Bad Monsoons can have an adverse impact on Inflation and hence rates. Indian Govt.: Recent moves have not been as successful as hoped. Rajya Sabha minority still an issue. US/UK Quantitative Easing: If the developed economies raise rates and the spread between Indian and US/UK yields narrows, capital will flow out from India. Price of Crude Oil: Major drop in inflation and interest rates was due to sharp fall in Crude Oil prices. This trend has started to reverse. Global Political Environment: Syria, Brexit, Trump, Immigrants in Europe Impact of Demonetization www.actuariesindia.org 7 Accelerated Fall in Interest Rates due to increased money in banks. Increased Transparency and Move to Financial Savings leading to greater exposure to debt and equity markets. Reduction in Economic Activity: Negative Wealth Effect and decrease in currency in circulation. Massive Fiscal Gains: Higher tax revenues to significantly reduce fiscal deficit Undisclosed notes to reduce RBI liabilities and will be eventually available to be distributed as dividend to Govt. Increase in Demand for Govt. Papers: Higher demand of Govt. bonds from Banking