Government bond prices ended up but off from day’s highs after profit booking and comments from a finance ministry official tempered the sharp rise intraday, dealers said.
The most traded 8.24 per cent, 2018 gilt settled at Rs 105.62 or 7.3996 per cent yield-to-maturity after rising 1 rupee intraday. It had ended at Rs 105.22 or 7.4576 per cent yield on Tuesday. Tuesday, Economic Affairs Secretary Ashok Chawla had said one should not expect monetary measures in just one or two days.
Prices had surged intraday because of persistent buying on hopes that a slowing economic growth and need for sustained comfortable liquidity will prompt Reserve Bank of India to announce deep cuts in interest rates at the earliest.
Price of this bond rose over Rs 1.75 in last four business days on these expectations.
Most market participants now expect RBI to cut both repo and the reverse repo rates by at least 50 basis points.
Some bond traders even expect cash reserve ratio to be slashed to an equal extent pointing out to the need for maintaining adequate liquidity. Comments from finance ministry officials including Finance Minister P Chidambaram have cemented expectations of interest rate cuts from the central bank.
More From This Section
On Tuesday, Chidambaram, before meeting RBI Governor D Subbarao, said the government and RBI are biased towards stimulating economic growth and that liquidity will be ensured at an adequate price. Although Subbarao refused to comment on inflation and liquidity, he reiterated that the central bank will take appropriate measures at an appropriate time.
Subbarao also met Prime Minister Manmohan Singh Monday to discuss possible measures to counter slowdown in economic growth. However, remarks of finance ministry officials and profit taking at higher levels shaved off some gains, and the 8.24 per cent, 2018 retreated nearly 20 paise to end at Rs 105.62.
Call rate dip further
Call money rate ended slightly down around 6.50 per cent as demand waned with most banks having met reserve needs for the current Reporting Fortnight, dealers said.
One-day call rate ended at 6.4-6.5 per cent On Wednesday compared with Tuesday’s close of 6.60-6.75 per cent. CBLOs ended at a weighted average rate of 5.86 per cent, compared with 5.97 per cent on Tuesday.
Liquidity was also comfortable in the system with banks borrowing only Rs 3,950 crore at Reserve Bank of India’s twin repo tenders On Wednesday compared with Rs 4,700 crore on Tuesday. In fact, banks parked surplus cash to the tune of Rs 24,435 crore at the central bank’s twin reverse repo tenders On Wednesday compared with Rs 16,100 crore on Tuesday.
However, market participants have been expecting RBI to take more steps to boost liquidity in the system.