Govt bond prices head north

Government bond prices continued to head north on Thuresday because worries of a cut in statutory liquidity ratio faded prompting investors to buy bonds, dealers said.

“It seems that fear of an SLR cut had reduced to a great extent,” said Pradeep Madhav, managing director of STCI Primary Dealership. Comments of a senior finance ministry official on Thuresday allayed persisting fears of an SLR cut.

The official ruled out an SLR cut saying there was no reason for reducing SLR when government was likely to overshoot its market borrowing aim.

He said there were other methods to inject liquidity. RBI has cut cash reserve ratio thrice and repo rate once in last 17 days in a bid to ease cash crunch in the banking system.

Despite these measures, some gilt dealers still believe RBI will announce more liquidity releasing measures in its policy review on Friday.

“More rate cuts and CRR cuts are inevitable due to RBI’s intervention in the foreign exchange market,” said J. Moses Harding, executive vice-president and head of global markets, IndusInd Bank.