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Bonds and rupee move steady ahead of RBI policy

The benchmark bond yield was little changed at 7.83 per cent amid lacklustre trading activity.

, ET Bureau|
Last Updated: Jun 06, 2018, 12.46 PM IST
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It has been trading in the range of 6.79-6.84 per cent in the past few days.
MUMBAI: Bond and currency markets are steady and stable ahead of the Reserve Bank of India’s bi-monthly monetary policy with traders staying off from taking new bets.

At 12:05 hours the rupee gained about 0.10 per cent against the dollar to trade at 67.04/$. The benchmark bond yield was little changed at 7.83 per cent amid lacklustre trading activity.

The central bank will announce the policy at 2.30PM today.

“Bond yields may spike if the RBI increases the policy rate by a quarter percentage point (25 bps) while flagging off further inflation concerns. But, the rupee may trade in a range unless any extra-ordinary event triggers panic,” said a rate analyst from a private bank.

Traders are said to be holding less stocks in their books amid uncertainties, dealers said.

If the central bank springs any ugly surprise, it is expected to push up yields. However, lower stock holdings should help negate any sudden spurt in yields.

A hawkish stance or a rate increase is expected to push up benchmark bond yields by about 10 basis points, dealers said.

The central bank would harden its stance to hawkish, according to an ET poll of 25 market participants, a prelude to an eventual increase in the benchmark rate by the next bi-monthly conclave of the Monetary Policy Committee in August.

About half of the respondents expect a quarter percentage point rate increase this policy, marking the first such raise since the BJP-led National Democratic Alliance government was voted into office in May 2014.

The 12-month Overnight Indexed Swap (OIS) rate, an indicator of future rate action, has remained elevated at close to a more than two-year high, signalling that the Reserve Bank of India may increase policy rates for the first time in almost four-and-a -half years.

It has been trading in the range of 6.79-6.84 per cent in the past few days.

The OIS is a derivative matrix, where investors exchange fixed rates for floating.






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