The benchmark 10-year paper yield dipped to a new low of 7.72 per cent today on the expectations of a repo rate cut by the Reserve Bank of India (RBI) as well as a cut in the employees provident fund (EPF) interest rate.
It fell by eight basis points in the morning from yesterday's close of 7.80 per cent to pierce the previous all-time low of 7.76 per cent touched on December 4. However, the 10-year paper yield rose later during the day to close at 7.78 per cent as there was no cut in EPF interest rate.
A treasury head of a new private bank: "The cut in administered interest rate, if it could happen, can be followed by some monetary easing measures -- a 50 basis point cut in the repo rate by the central bank. This expectation led to the rise in government security prices and the fall in yields."
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According to another private bank dealer, there was enough liquidity in the market and the repo cut expectation was only an excuse to generate buying interest.
The RBI has kept the repo rate unchanged since May 29 even as it reiterates its bias towards softer interest rates. The central bank has cut the bank rate by 50 basis points to 6.50 per cent on October 22 and reduced the cash reserve ratio (CRR) by two percentage point to 5..5 per cent, but declined to cut the repo rate in the last seven months.
The repo and reverse repo rates are considered as the floor and the ceiling of the call money rates. The reduction of these two rates will bring the call rates down.