Mumbai: Government's 10-year bond yield on Friday pared all its losses and gained after Reserve Bank of India cut rate which was in line with estimates but less than analyst expectations.
10-year bond yield rose 7.5 basis points to 6.688% from its Thursday's close of 6.613%. Bond yield and prices moves in opposite direction.
The RBI on Friday reduced rates by 25 basis points and maintained its policy stance to accommodative. Brokerage firm Bank of America Merrill Lynch have expected 35 basis points cut, Edelweiss Securities projected 40 basis points reduction and Nomura Research estimated 35-40 basis points cut in policy rate.
Six out of 10 treasury heads and economists surveyed by Mint said that RBI repo rate will be reduced by 25 basis points to 5.15% while maintain an accommodative stance.
The central bank also cut gross domestic product target sharply by 80 basis points for fiscal year 2020 to 6.1% from 6.9%. RBI also raised its second quarter fiscal year 2020 retail inflation projection to 3.4% from 3.1%.However, it retained its 3.5-3.7% projection for second half of FY20 and 3.6% estimates for first quarter of FY21.
"The RBI’s growth projection is set to be disappointed again at end-November (when Q3 GDP data are out), which keeps the door open to another cut at the December policy meeting. However, with the RBI having already delivered 135bp rate cut and diminishing marginal returns from each additional rate cut, we believe the rate easing cycle is closer to its end. We expect the RBI to deliver a final 15bp cut in December", expects Nomura Research in a note to its investors.
Analyst believes that the market will now look forward to any possible open market operation purchase operations to get comfort on absorption of additional supplies if any. Over all bond yields to remain range bound with easing bias, they expects.
Meanwhile Rupee erased all its gains and weakened against US dollar. The domestic currency was trading at 70.89 a dollar, down 0.01% from its previous close of 70.90.