Can we Compare Bank Nifty with Interest Rate Spread to Find the Cyclical Movement? – Investing.com India

Can we Compare Bank Nifty with Interest Rate Spread to Find the Cyclical Movement? – Investing.com India

Generally, the sectors like banks, automobile, housing finance, real estate, metals, etc. react to rate changes whenever RBI reviews the rates every two months. Recent RBI monetary policy unchanged the repo rate and kept it at 4%. The rising Repo Rate slows down the economic growth and is unfavourable to the markets. Usually, a low-interest rate causes high inflation, and a high interest rate brings down inflation. Countries like Brazil, Russia, Turkey are facing high inflation, raised interest rates recently.
 
As inflation is globally interconnected and in India, Petrol Diesel prices crossing Rs 100 and Palm oil prices more than doubled, surely inflation will shoot up in coming months so RBI has to increase interest rate which is inevitable.
 
To get a better understanding of Interest rate cycles, we have taken the Spread of the 10-year bond Yield Rate and 3 Month Treasury Rate and compared them with Returns. To find out how the bank index is reacting to Interest rate spread, which may not be a perfect indicator as it shows some misleading whipsaws. We can have a long term prediction approximately.


In this Chart, the Interest rate spread is compared with Bank in which it