The Telegraph
Since 1st March, 1999
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Jalan rules out repo reduction

Mumbai, Jan. 6: Reserve Bank governor Bimal Jalan today ruled out an immediate cut in the repo rate but said the soft monetary policy stance would continue.

“The repo rate can be changed as and when required, while gilt yields are for the market to decide. But as of now there is no proposal,” he told reporters on the sidelines of the annual day celebrations of the National Institute of Bank Management (NIBM) in Pune today.

The governor’s comments came amid intense speculation on the gilt markets that the central bank could bring down the repo rate—currently at 5.75 per cent—by 25-75 basis points later this month. Optimism on this front saw yields on the benchmark 10-year government security dipping below the 6 per cent mark.

However, Jalan’s statement did not adversely impact yields as the markets welcomed his statements on maintaining the soft monetary bias. On the contrary, sentiments received a further boost as the central bank fixed a high cut-off price at the multiple price auction. While auctioning the 7.38 per cent, 2015 paper for a notified amount of Rs 5,000 crore, the RBI set a high cut-off price of Rs 111.58 or a yield of 6.06 per cent.

Consequently, yield on the benchmark 7.40 per cent 2012 security was trading at 6 per cent.

Jalan told reporters that while the inflation outlook was good despite the drought and high oil prices, he this trend would help keep interest rates soft. “Inflation outlook is good, very benign and despite the high oil prices and drought it is at a historical low of around 3.5 per cent, which is very unusual,” he noted.

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