The benchmark rallied from just below 10% to 9.72% today, so it might be a valid question to ask how much further can it go. I have four approaches to tackle this question, assuming that the Bank has two more cuts, one 50bp another 25bp, in its sleeve:
1. The difference between rate expectations today and a year from now gives a rough idea on where the benchmark is headed. This approach yields a trough of 9.2%.
2. Equating funding costs to the duration of the benchmark, I end up with 9%, assuming a 100bp difference between the funding cost and the benchmark.
3. Cross Currency Swaps: Now, we calculate policy rate expectations from the CCS market and proceed similar t0 1. This method yields a minimum rate of 9.4%.
4. Integrating all this together, I can also use my ARDL model from last year: It yields a minimum benchmark of 9.2-9.3%.
Sorry for the short explanations, but I am really sleepy. But I would love to discuss these further with anyone interested.
1. The difference between rate expectations today and a year from now gives a rough idea on where the benchmark is headed. This approach yields a trough of 9.2%.
2. Equating funding costs to the duration of the benchmark, I end up with 9%, assuming a 100bp difference between the funding cost and the benchmark.
3. Cross Currency Swaps: Now, we calculate policy rate expectations from the CCS market and proceed similar t0 1. This method yields a minimum rate of 9.4%.
4. Integrating all this together, I can also use my ARDL model from last year: It yields a minimum benchmark of 9.2-9.3%.
Sorry for the short explanations, but I am really sleepy. But I would love to discuss these further with anyone interested.
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