G-sec surges on repo rate cut

Government bond prices surged today, rising Rs 2.35 at close on Monday, as a steep 100-basis point cut in the repo rate to 8 per cent by Reserve Bank of India (RBI) lifted the sentiment and prompted investors to spruce up their portfolio, dealers said.

“The repo rate cut was good news for the market and we saw the buying, which took place in its wake. The timing of the rate cut is surprising, given the fact that the policy review is just a few days away, said IDBI Gilts Managing Director N S Venkatesh.

However, if comments by senior government officials were to be revisited, the cut does not look surprising because these officials have been commenting and reinforcing the need for lower interest rates over the past few weeks.

 

On October 17, a senior finance ministry official had stressed the need to bridge the repo rate and the overnight rate.

Today, the most-actively traded 7.94 per cent, 2021 paper, ended at Rs 101.90, up from Friday’s close of Rs 99.55.

Trading in the 10-year benchmark 8.24 per cent, 2018 paper, which is usually the most-traded paper, closed today on account of book closure for coupon payment, dealers said.

Call rate down

With an improved fund supply and tempered demand, lending rates in overnight money market fell to a one-and-a-half month low on Monday. An injection of over Rs 1,00,000 crore through a sharp 250-basis point cut in the Cash Reserve Ratio (CRR) to 6.5 per cent eased the liquidity position.

Call rates ended today at 6.25-6.50 per cent, little changed from 6.75-7.00 per cent at close on Friday. During the day, rates fell to 6 per cent, its lowest since September 12.