Lacklustre bonds and currency market ahead of RBI policy

MUMBAI: The bond and currency markets remain lacklustre ahead of the Reserve Bank of India’s bi-monthly monetary policy as traders are shying away from taking any fresh positions, dealers said.

At 12:55 hours, the government benchmark yield is little changed at 6.77% while the rupee rose a tad at 66.57 against the dollar.

“We are expecting that rates would come down by at least 50 basis points over the next six months,” said Ajay Bodke, CEO & Chief Portfolio Manager: PL- PMS, Prabhudas Lilladher.“Ample rains after two years of drought resulting in expected bountiful kharif harvest post October-November 2016 as well as a rise in water table & strong reservoir levels across India presaging a strong rabi season.”

“It would lead to further softening in CPI & food inflation allowing more leeway to the Central bank in its policy of monetary accommodation,” he said.
Borrowers may expect cheaper loans as most bankers expect the Reserve Bank of India, backed by the newly formed Monetary Policy Committee ( MPC), to cut the policy rate by 25 basis points in its bi-monthly credit policy on Tuesday.

A majority, 14 of the 18 banks and financial institutions polled by ET, expects the central bank to cut the policy rate, while the rest feel the rates may remain unchanged as the country steps into the league of developed nations by having a panel to decide policy rates.

In the past one month overseas investors bought Indian debt securities as September turned out to be the best month for Indian bonds with foreign investors investing a record Rs 9,789 crore, data from NSDL shows.

The Federal Reserve's decision to leave rates unchanged helped, but the outlook for Indian rates also turned benign as the August inflation reading opened up the possibility of rate cuts.