Bonds, rupee fall; RBI keeps rates steady, cuts SLR

MUMBAI (Reuters) - Bonds and rupee fell after the central bank held interest rates steady on Tuesday but reduced the statutory liquidity ratio, or the amount of bonds that lenders must set aside, by 50 basis points.

The Reserve Bank of India (RBI) held interest rates steady at 7.75 percent after easing monetary policy just three weeks ago, leaving its next move probably until after the government presents its annual budget at the end of this month.

Most economists polled by Reuters had expected the RBI to keep its repo lending rate steady, and reduce rates later so long as the budget, due to be unveiled by Finance Minister Arun Jaitley on Feb. 28, does not disappoint.

The RBI has indicated that key to further easing are data that confirm continuing disinflationary pressures and sustained high quality fiscal consolidation.

"Yields have inched higher a bit due to the SLR cut but a combination of upcoming GDP, inflation data would support a range of 7.65-75 for the near term," said Lakshmi Iyer, chief investment officer of debt at Kotak Mutual Fund.

"The policy is on expected lines but RBI's stance continues to favour easing. We will see cuts of 50-75 basis points in 2015," she added.

The 10-year benchmark bond yield rose 7 basis points to 7.72 percent after earlier falling to 7.64 percent, its lowest since July 15, 2013.

The rupee trimmed intraday gains to 61.80/81 per dollar versus Monday's close of 61.7950/8050.

The Nifty fell 0.6 percent after being volatile earlier, led by declines in rate-sensitive stocks.

Five-year swap rate rose 9 basis points to 6.89 pct, while one-year rate gained 10 basis points to 7.56 percent.

Traders said the size and scope of the government's upcoming budget will be a key factor in determining whether bonds rally from here.

(Reporting by Abhishek Vishnoi; Editing by Gopakumar Warrier)