Bond yield falls as RBI holds rates; Rupee closes lower against US dollar
Mumbai: Government bond yield fell on Wednesday after the Reserve Bank of India (RBI) kept its interest rates unchanged, while maintaining a neutral monetary policy stance. The rupee ended weaker for a fifth session to hit near fresh two month low against US dollar.
Yield on India’s benchmark 10-year government bond ended at 7.53%, down from its previous close of 7.57%. Bond yields and prices move in opposite directions.
The RBI also hinted that monetary conditions are likely to remain tight because of rising risks to inflation. It raised its March-end Consumer Price Index (CPI) inflation forecast to 5.1% and projected an inflation range of 5.1-5.6% in the first half of the next fiscal year.
“Relief that the central bank did not adopt an outright hawkish tone and maintained its data-dependent guidance, saw bond yields pullback from highs. Much of the negativity regarding the fiscal outlook and inflation concerns are in the price and thereby consolidative moves are likely in the near-term”, said Radhika Rao economist at DBS Bank Ltd.
The monetary policy committee of the central bank decided to keep repo rate—at which the RBI infuses liquidity in the banking system—on hold at 6%.
All but one of 15 economists surveyed by Mint expected RBI to keep the repo rate unchanged. One economist expects a 25 basis points hike (a basis point is one-hundredth of a percentage point).
“A well balanced policy with an attempt to alleviate excess concern of rate hike without stoking exuberance is the genesis of two critical points- “the nascent recovery needs to be carefully nurtured and growth put on a sustainably higher path” and policy vigilance is require to protect against external & internal sources of disabilities”, said Soumyajit Niyogi, associte director, India Ratings and Research.
“I think Bond traders should put adequate emphasis on two points- nascent recovery needs to be carefully nurtured, and liquidity infusion should not be judged with negative spirit”, Niyogi added.
The rupee closed at 64.29, down 0.06% from its previous close of 64.25. It opened at 64.11 a dollar and touched a high and a low of 64.04 and 64.31, respectively.
India’s benchmark Sensex index fell 0.33% or 113.23 points to 34,082.71. So far this year, the Sensex has risen 0.5%. Over the last seven sessions, around Rs 8.93 trillion of wealth has been eroded from the Indian stock market, and Sensex is down 6.06% from its peak of 36283.25 seen on 29 Jan
Since the beginning of this year, the rupee has fallen 0.3%, while foreign institutional investors have bought $2.25 billion from local equity and $2.06 billion in debt markets.
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