The yield on government bonds may continue to move up, on apprehension that Reserve Bank of India (RBI) may harden the monetary policy stance soon to manage inflationary expectations.
The prices of bonds may fall sharply if fears of tight monetary policy persist, dealers said. On Friday, the G-Sec market fell sharply by 30-50 paise, amid rumours that the central bank may raise the reserve requirement.The benchmark 10-year 6.90 per cent 2019 paper closed at Rs 96.10, implying a yield of 7.47 per cent. Yield had closed at 7.19 per cent last Friday (November 27).
The Centre and 19 state governments have lined up bond auction plans to raise Rs 28,500 crore from the market next week.
The government, after raising Rs 10,000 crore on December 4, will again tap the market on December 11, to raise Rs 10,000 crore again through bond sale.
Call rate may remain soft
The interest rates in inter-bank overnight lending market are expected to remain soft on comfortable liquidity in the system.
The overnight call rates moved between 3.10-3.35 per cent. On Friday, the absorption by RBI under Reverse Repo operation fell sharply to Rs 63,080 crore from Rs 1,25,920 crore yesterday. It did not infuse any amount under repo operation.
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Rupee to remain range-bound
The rupee may move in a range, tracking trends in flow of capital in the stock market and fluctuation in the value of the dollar in global currency market.
On Friday, the rupee weakened considerably, to close at Rs 46.30 against the dollar. The forward premium rates eased over previous day’s levels. The six-month forward premium was 2.79 per cent.
The portfolio inflows, mostly from foreign institutional investors, of more than $19 billion have helped the rupee rise more than 13 per cent this year from a record low of 52.2 in early March 2009. In the currency futures market rupee contract for December 29 was priced at 46.34 in last trade.