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Rupee, bond prices fall after RBI rate cut

There is an inverse relationship between bond prices and yield.

ETMarkets.com|
Last Updated: Oct 04, 2019, 12.51 PM IST
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PTI
Shaktikanta-Das-PTI
This is the fifth straight cut by RBI in as many policy reviews in 2019, and takes the total quantum of reductions to 1.35 per cent.
The rupee and sovereign bond prices declined after the Reserve Bank of India (RBI) on Friday cut key lending rates by 25 basis points. The currency was trading marginally down at 70.90 per dollar against the previous close of 70.89.

At 12.35 pm, 10-year government bond yield was at 6.64 per cent, up 34 basis points. There is an inverse relationship between bond prices and yield.

With Friday’s cut, repo rate now stands at 5.15 per cent. This will help reduce borrowing costs for home and auto loans, which are now directly linked to this benchmark.

This is the fifth straight cut by RBI in as many policy reviews in 2019, and takes the total quantum of reductions to 1.35 per cent.

In the fourth bi-monthly review of the policy, the RBI sharply reduced its GDP growth estimate to 6.1 per cent for FY20 as against 6.9 per cent it was expecting earlier.

This came after June quarter growth slipping to six year low of 5 per cent, which is attributed to a slowdown in consumption, lack of new investments by the industry and also a slump in global economy.

"The MPC (monetary policy committee) decided to continue with an accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target," the resolution of the six-member panel headed by RBI Governor Shaktikanta Das said.

The RBI has also revised slightly upwards the retail inflation projection to 3.4 per cent for second quarter of 2019-20, while retained projections at 3.5-3.7 per cent for the second half of the fiscal and 3.6 per cent for the first quarter of 2020-21, with risks evenly balanced.

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