Yields rise as RBI says little space for further monetary easing

Bonds yields rose on Friday after the annual monetary policy of Reserve Bank of India (RBI) for 2013-14. RBI cut the repo rate by 25 basis points and left the Cash Reserve Ratio (CRR) unchanged at 4% of net demand and time liabilities of banks. However, the guidance given by RBI impacted bond market sentiments.

RBI said in its monetary policy statement that “the balance of risks stemming from the Reserve Bank’s assessment of the growth-inflation dynamic yields little space for further monetary easing.”

At 11:15 am, the yield on the 10-year benchmark government bond 8.15% 2022 was quoting at 7.78% compared with previous close of 7.72%.

The repo rate now stands at 7.25%. The street had expected that the guidance will be for further rate cuts.

Expectations of a rate cut had build up after Wholesale Price Index (WPI) inflation for March rose 5.96% after an annual uptick to 6.84% in February.

The other comforting factor was that the Current Account Deficit which had widened to a record high in the quarter ended December 31 is expected to narrow down in the fourth quarter.