Prices Of Gilts Inclined Northward

Prices of government securities could inch up as the market feels that the softer interest bias in the economy will continue into the new financial year.

Players are waiting for the Iraqi crisis to pass so that it can get into a rally mode.

However, advance tax outflows could crimp liquidity, thereby limiting price gains. Inflation could be a cause for concern.

Yield on the benchmark 10 year, 9.81 per cent gilt, which finished last week at 6.32 per cent, could come off to test 6.25 per cent level. Market interest will be in the medium and short-tenor gilts.

The softer rate bias has been reinforced by the fact that the central government cut the interest rate on group provident fund and special deposit schemes by 100 basis points last week.

This rate cut could put pressure on the Central Board of Trustees (CBoT) to acquiesce to snip the returns on employees provident fund (EPF).

The CBoT has been resisting reduction in the EPF rate, which at 9.5 per cent is out of sync with the general interest rate structure obtaining in the economy.

Further, the Reserve Bank of India governor Bimal Jalan said on Saturday the bank would maintain its soft monetary policy.