Mumbai, Oct. 29: The mid-term review of the monetary and credit policy today saw the bond and forex markets do an encore—with the rupee rallying against the US currency and yields of key government securities dipping to fresh lows—even though analysts say interest rates are unlikely to fall further.
Bond market circles said that Reserve Bank of India (RBI) governor Bimal Jalan’s move to bring down the bank rate, repo rate and cash reserve ratio (CRR) each by 25 basis points led to prices of government securities rising by 40 paise. Sources said the benchmark 10-year security, after hitting a new low of 6.98 per cent rose to finish at 7.02 per cent due to profit booking.
Analysts told The Telegraph that the bond markets were likely to remain stable in the days to come. This is largely due to the hint given by the RBI that it intends to keep the bank rate stable at the present level, at least until the end of this year.
“The markets will witness a gradual movement. However, its upside and downside will be limited,” N. Balasubramanian, a senior ICICI Bank official said.
Jalan said while the bank rate is reasonable in ‘real terms,’ for the lower rate regime to be sustainable, inflation should be kept low. He however, did not rule out a cut in the repo rate.
R. V. S. Sridhar, vice-president and chief dealer UTI Bank, pointed out that the RBI has signalled “some sort” of caution as regards interest rates, hinting it may be unlikely to fall further at least in the short term.
The positive reaction was not restricted to the bond markets alone. It was also felt in the forex market where the Indian currency overcame early month-end lows to rally against the dollar. The rupee closed at 48.37/38, with exporters offloading the greenback as it recovered from its previous close of 48.4250/4350 per dollar and an intra-day low of 48.4750/4850.