The movements of gilt yields this week depends to a large extent on the Reserve Bank of India (RBI)’s mid-quarter monetary policy review on Tuesday. Most economists are not expecting a repo rate (at which banks borrow from RBI) cut on Tuesday. However, the Street sees a slight probability of a cut in the cash reserve ratio (CRR), currently at 4.25 per cent of banks’ net demand and time liabilities.
CRR is the proportion of total deposits a bank has to keep with RBI as cash. However, those who do not expect a CRR cut have said RBI has again started conducting open market operations (OMOs) purchase of gilts to infuse liquidity. As a result, it is comfortable.
India’s wholesale price index (WPI) inflation eased to its weakest pace in 10 months in November, showed government data on Friday. WPI rose 7.24 per cent from a year earlier, compared with October’s 7.45 per cent. This helped the yield on the 10-year benchmark gilt 8.15 per cent 2022 end at 8.14 per cent on Friday, compared with a previous close of 8.16 per cent.
“If RBI decides to go for a cut in the repo rate, as inflation had eased in November, the 10-year benchmark gilt may drop to 8.05 per cent. However, if there is no rate cut, it may not move much from current levels,” said a gilts dealer with a private sector bank.
The rupee is expected to weaken against the dollar, as the government’s defence-related purchases are expected to continue, along with dollar demand by importers, said dealers. On Friday, the rupee fell to its lowest in a week, due to heavy dollar buying. The rupee ended at Rs 54.49 on Friday, compared with the previous close of Rs 54.47.
