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10 year bond yield rise ahead of RBI policy

Ahead of the monetary policy announcement by the Reserve Bank of India, the 10-year bond yield went up.

ET Bureau|
May 03, 2013, 11.19 AM IST
MUMBAI: Ahead of the monetary policy announcement by the Reserve Bank of India, the 10-year bond yield went up.

The 10-year bond yield was at 7.77 %. It opened at 7.75-76%. It closed at 7.73% yesterday.

'The bond market has already factored in a 25 basis points cut in repo rate," said a trader. 'If RBI maintains its hawkish stance, bonds may not rally."

The yields ate expected to fall to 7.73 % over the next few weeks.

With growth slowing down, current account deficit remaining high and capital flows reversing, RBI hinted at very limited space to ease rates. An ET poll of 15 economists and traders has forecasted a 25-basis-point cut in repo rate - the rate at which RBI lends to banks - to 7.25%. One basis point is one hundredth of a percentage.

'Given the increased rate-cut expectations since the sharp fall in WPI inflation and commodity prices, the macro report is clearly hawkish and suggests that the probability of no repo rate cut tomorrow has risen," said Nomura in its report. 'However, with growth slowing and WPI inflation likely to moderate further, we believe that the balance of risks continues to favour a gradual policy easing. Therefore, we are sticking to our view of a 25bp cut in the repo rate tomorrow and unchanged cash reserve ratio, in line with consensus."

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