Bond yields might fall, rupee could gain

The yield on the 10-year benchmark bond fell on Tuesday to 7.74%, compared with the previous close of 7.76%

The bond market awaits the Reserve Bank of India (RBI)’s monetary policy review this week, to be announced on Tuesday. The broad expectation is that the repo rate, at which banks borrow from the central bank, will be kept unchanged but RBI might make dovish statements to support growth due to which yields might fall.

The yield on the 10-year benchmark bond fell on Tuesday to 7.74 per cent, compared with the previous close of 7.76 per cent. After Tuesday, the bond and the currency market were shut due to holidays.

“The 10-year bond yield could fall close to 7.65 per cent, as RBI may make dovish statements without cutting the repo rate. It could be a growth-supportive monetary policy,” said N S Venkatesh, executive director and head of treasury at IDBI Bank.

The repo rate stands at 7.5 per cent and the rate cut cycle began earlier in 2015 under which, so far, the street has seen two rate cuts of 25 bps each time.

The rupee is expected to appreciate, as financial year-end dollar demand from importers came to an end in March. According to currency experts, dollar flows will continue in the domestic markets, which will help the rupee appreciate.

The rupee ended at 62.50 on Tuesday, compared with the previous close of 62.68 to a dollar. The broad trading range seen by currency dealers is between 62 to 62.70 this week.