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Bond yields plunge sharply after surprise rate cut by RBI

04 Mar 2015 Evaluate

Bond yields slipped after central bank surprises with a 25 basis points repo rate cut. Giving its affirmation to the fiscal consolidation measures announced by the government in the Budget, the Reserve Bank of India (RBI) has cut repo rate by 25 basis points or 0.25 percent to 7.5 percent. RBI governor Raghuram Rajan in his statement has said that, while maintaining the interest rate stance in its sixth bi-monthly monetary policy statement of February 3 in the absence of new developments on inflation or on the fiscal outlook till then, the Reserve Bank indicated that it will keenly monitor the revision in the consumer price index (CPI) with regard to the path of inflation in 2015-16 as well as the Union Budget for 2015-16. Inflation in January 2015 at 5.1 per cent as measured by the new index was well within the target of 8 per cent for January 2015.

On the global front, US treasury prices fell for second consecutive session on Tuesday, pressured by corporate bond sales, while demand for relatively high US yields and anticipation of Friday’s US jobs report capped losses. Meanwhile, brent crude dipped on Wednesday. But held above $60 a barrel, supported by  a rise in  Saudi crude prices and air strikes on oil facilities in Libya.

Back home, the yields on new 10 year Government Stock 2023 were trading 8 basis points lower to 7.67% from its previous close of 7.75% on Tuesday.

The benchmark five-year interest rate swaps were trading 15 basis points lower at 6.95% from its previous close of 7.10% on Tuesday.

The Reserve Bank of India has announced the auction of 364 and 91 day Government of India Treasury Bills for notified amount of Rs 6,000 and Rs 8000 crore respectively. The auction will be conducted on March 04, 2015 using 'Multiple Price Auction' method.

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