Money market: 10-year yield to move between 8.30 and 8.70%

Anil Bhansali
Vice President, Mecklai Financial

The 10-year GoI Security ended the week at 8.47% after rising as high as 8.70% last week as markets factored in a likely rate cut by RBI of 25 basis point on April 17. The money market situation also eased during the week with banks bidding for a sum of Rs 74,500 crore as against a high of Rs 1,91,700 crore seen on March 1, 2012 and around Rs 1,60,000 crore at the end of the financial year.

It was still above the RBI’s comfort zone of Rs 60,000 crore. With the rate cut being factored in by the markets, we can expect the yields to move in the range of 8.30% to 8.70% during the week as auction of Rs 15,000 crore is scheduled with the securities to be announced on Monday.

There is no OMO scheduled during the week. The call money could move in the range of 8.00% to 9.00% as it is also widely expected that RBI may cut CRR to ensure that the rupee amount absorbed by them by intervening in forex markets is compensated.

The CBLO rates also fell to 8.36% as people postponed their borrowings to next week in view of an impending rate cuts, which will be the first in nearly three years by the central bank ; while the rates of one-year CDs, which had gone up to 11%, also fell to around 10%. As the government revives spending, it is expected that the call rates, the CBLO and the G Sec rates will stay in the lower side of the curve during the week.

The lower than expected IIP at 4.1% and the sharp revision of the January figures to 1.1% from 6.8% will certainly put pressure on RBI to cut rates but all eyes will be on the WPI inflation data to be announced on April 16, before the policy, which is expected to come at around 7.05%.

It is unlikely that inflation figures will fall much as the hikes in service tax and excise duty will add to the price pressure by the end of next month only while the government also contemplates to increase oil prices.