Bond dealers see no interim rate cut

MUMBAI: Dealers in the local bond market rule out the possibility of the central bank announcing a rate cut in the interim period. Bond market participants were divided over the likelihood of a rate cut to be announced on Tuesday.

The US Fed, which lowered rates by 75 basis points exactly a week ago, is scheduled to meet on Tuesday once again. Despite the possibility of another rate cut in the US this week, the Fed is not the only factor which the central bank keeps in mind while formulating its policies, said bond market watchers.

Bond yields had gone by eight points on Tuesday morning after the market got the news of the rates being left unchanged. Dealers had built up positions over the past few days, riding on expectations of a 25-basis point cut in the repo rate - the rate at which the central bank lends funds to banks.

However, dealers are viewing this as a temporary effect, and expect yields to consolidate around the 7.5% mark over the coming few days.

“The initial reaction of the market has been negative because of the build-up on the expectations of the rate cut, but the movements in the yield curve are following a long term trend and a consolidation at 7.5% levels is expected for the next few days,” feels K Ramkumar, head fixed income at Sundaram BNP Paribas AMC.