Bond yield soften on RBI's surprise status-quo stance on policy rates

 

The yield on government bonds softened as Reserve Bank of India in surprise move kept key policy rates unchanged.

The yield on 10-year benchmark (8.83% bond maturing in 2013) dipped sharply at 8.78% today from 8.91% on Tuesday.

Bonder dealers said market was bracing for 25 basis point hike in repo rate in line with the discomfort expressed by over RBI elevated inflation –wholesale as well as retail.

On Tuesday, the bond yields (on 10-year benchmark paper) had hardened by four basis points over Monday amidst concerns over the outcome to the Mid-Quarter Monetary Policy Review.

Belying market expectations, RBI kept repo rate untouched at 7.75% in mid quarter review of monetary policy.

While sounding concern over inflationary pressures, RBI governor  Raghuram Rajan seem to have preferred to wait to see effects of previous monetary policy actions (50 basis point hike done in two tranches). There is also prospect of easing of food and vegetable prices on arrival of fresh crop.