Pre-RBI Policy: Here's how bonds and rupee react

MUMBAI: Ahead of the Reserve Bank of India’s third quarter monetary policy, the ten-year benchmark bond yield fell four basis points or 0.46 per cent pushing prices higher in the early trade on Tuesday. At 9:55 hours it was trading at 8.73 per cent compared with 8.77 per cent, its Monday close.

“With the policy being announced in next one hour, markets are expecting no change in rates,” said a senior official from a standalone Primary Dealer. He did not wish to be named. “Market was oversold yesterday and hence, a bounce back was due, which is happening.”

The central bank governor Raghuram Rajan will announce its credit policy at 11:00 hours.

Trading volume looks thin with traders waiting for the final policy decision. The most traded government securities carrying a coupon of 8.83 per cent so far has seen a total volume of Rs 1,725 crore as against an average of 15,000 -20,000 per day.

At 10:10 hours, Indian rupee pared its early losses to trade at 63.05 after hitting an intra-day low at 63.18. It fell to a two-and-a-half month low against the dollar on Monday, tracking weakness in other emerging market currencies against the greenback.

“On Indian side, everything looks under control,” said Krishnamoorthy Harihar, Head-Treasurer, FirstRand Bank India. “Since last night no further worsening has taken place globally. This has added to the sentiment. Markets are now keenly waiting for FOMC meet.”

The US Federal Reserve could announce more tapering of its monetary stimulus programme after a meeting of its policy-setting Federal Open Markets Committee on Wednesday. Markets expect the Federal Reserve to unwind its monetary largesse by another $10 billion, which may further squeeze money flows to emerging countries.

Political and economical turbulence in Argentina and Turkey led their respective government to devalue their currencies by 15-17 per cent. This has pressed the panic button among investors internationally.