Bond yields fall on RBI status quo, prices spiked 84%
The government bond market rallied after RBI said it has decided to keep key policy rates unchanged.
By ET Bureau | Updated:
MUMBAI: The government bond market rallied on Wednesday after the Reserve Bank of India said it has decided to keep key policy rates unchanged at its mid-quarter monetary policy review.
The benchmark 10-year bond yields fell 12 basis points, or 135%, to close at a two-week low of 8.78%. Bond prices spiked 84 paisa, or 84%, to 100.28. Yields and bonds move in opposite directions.
"Markets are clearly surprised by no increase in interest rates," said Mohan Shenoy, treasury head at Kotak Mahindra Bank. "But inflation pressure is not going to subside anytime soon. The December inflation will decide the next course of (policy) action. The 10-year yields are expected to trade in the range 8.70-9%."
In an ET poll of 20 institutions, 17 had expected a 25 basis point hike in the repo rate, or the rate at which banks borrow money from RBI. One basis point is a hundredth of a percentage point.
There is reason to wait before determining the course of monetary policy, the central bank said in the policy statement, suggesting that vegetable prices may be coming down.
"It is RBI's forward-looking policy and the market is also in a wait-and-watch mode," said Sandeep Bagla, executive vice-president at ICICI Securities Primary Dealership. "Although it is not a victory on inflation but the excessive negative sentiment has gone out."
The rupee fell eight paisa, or about 13%, to 62.10 against the US dollar ahead of the Federal Reserve meet that may indicate a rolling back of its monetary largesse.
"Globally, markets were preparing for it," said Pramit Brahmbhatt, CEO at Alpari India. "Some investors were cautious ahead of the US FOMC meet. Any semi-positive outcome from it will lead to a stronger rupee against the greenback tomorrow (Thursday)."
The benchmark 10-year bond yields fell 12 basis points, or 135%, to close at a two-week low of 8.78%. Bond prices spiked 84 paisa, or 84%, to 100.28. Yields and bonds move in opposite directions.
"Markets are clearly surprised by no increase in interest rates," said Mohan Shenoy, treasury head at Kotak Mahindra Bank. "But inflation pressure is not going to subside anytime soon. The December inflation will decide the next course of (policy) action. The 10-year yields are expected to trade in the range 8.70-9%."
In an ET poll of 20 institutions, 17 had expected a 25 basis point hike in the repo rate, or the rate at which banks borrow money from RBI. One basis point is a hundredth of a percentage point.
There is reason to wait before determining the course of monetary policy, the central bank said in the policy statement, suggesting that vegetable prices may be coming down.
"It is RBI's forward-looking policy and the market is also in a wait-and-watch mode," said Sandeep Bagla, executive vice-president at ICICI Securities Primary Dealership. "Although it is not a victory on inflation but the excessive negative sentiment has gone out."
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The rupee fell eight paisa, or about 13%, to 62.10 against the US dollar ahead of the Federal Reserve meet that may indicate a rolling back of its monetary largesse.
"Globally, markets were preparing for it," said Pramit Brahmbhatt, CEO at Alpari India. "Some investors were cautious ahead of the US FOMC meet. Any semi-positive outcome from it will lead to a stronger rupee against the greenback tomorrow (Thursday)."
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