Gilt Prices Seen Up On Crr, Bank Rate Cuts

The outlook on the government security market looks positive on the eve of the credit policy to be unveiled on Monday. Money market dealers expect an easy monetary policy in the form of cuts in bank rate and cash reserve requirement.

According to money market dealers, there is ample liquidity in the market. A dealer with a new private sector bank said: "A cut in the cash reserve ratio will further ease the liquidity condition. The bank rate cut will also indicate the RBI's comfort with the soft interest rates. Hence, if these measures are announced, the prices of government paper are likely to increase and the yields may fall."

 

According to the Reserve Bank of India's (RBI) indicative calendar, there will be an auction of Rs 6,000 crore 10-year paper. Money market dealers expect the issue to be oversubscribed and the cut-off yield for the paper to be around the secondary market levels. The treasury head of a private sector bank said: "There is good amount of interest in the 7-15 year maturity level and hence we do not expect any problem with the subscription to the paper."

On Saturday, government security prices went up by 15-20 paise on the expectation of a cut in the bank rate and CRR. However, there was a bit of uncertainty before the credit policy announcement and this kept the trading volume low.