Government bond yields tumbled to their lowest level On Wednesday in over three-and-half years on expectations that deep rate cuts from Reserve Bank of India were on the cards, dealers said.
Yield on 10-year benchmark 8.24%, 2018 paper settled at 6.7790 per cent, against 7.0035 per cent on Tuesday.
“Market believes that RBI is likely to announce not token, but deep rate cuts. And this view caused the buying we saw On Wednesday,” said N S Venkatesh, managing director and chief executive officer, IDBI Gilts.
Thus, not many market participants rule out the possibility of RBI going for a 100-150 basis points cut in reverse repo and repo rates in order to spur growth.
Comments from senior government officials since Tuesday helped to strengthen the hope of deep rate cuts.
Suresh Tendulkar, head of prime minister’s economic advisory panel On Wednesday said fiscal stimulus and more rate cuts were needed to boost demand in the economy.
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On Tuesday, after market hours, a senior government official had hinted at the possibility of rate action before the weekend.
T-bills booster
Better-than-expected cutoff yields at On Wednesday’s Treasury bill auction also kept the sentiment upbeat.
RBI set a cutoff yield of 6.60 per cent at 91-day T-bill sale, when market had expected the cutoff at 6.81 per cent.
Similarly, at 364-day T-bill sale, the central bank set a cutoff yield of 6.30 per cent, while money market participants expected it at 6.74 per cent.
In addition to the above factors, comfortable liquidity in the banking system aided buying.
Global crude oil prices have stayed below the crucial psychological level of $50 a barrel and aided buying On Wednesday, as fears on the domestic inflation front were allayed.
Call rates flat
Call money rate ended steady On Wednesday because liquidity was adequate to meet banks’ reserve requirements, dealers said.
One-day call rate ended at 6.15-6.25 per cent, compared with Tuesday’s close of 6.15-6.20 per cent.