| This is because repo rate hike by 25 basis point by the Reserve Bank of India acted as a fresh jolt for the government securities. |
| Even though dealers had factored in 50 basis point hike in repo rate and the statements by the ministry officials expressing concern over impact of rate hike on economic recovery, the rate hike has endorsed the upward revision in the interest rates. |
| "The signal is clear that interest rates are going to go up. Going forward, the benchmark paper is expected to stabilise around 6.70-6.80 per cent. Moreover, it will take some time for the market to stabilise," said A S Khurana, general manager, treasury, Bank of Baroda. |
| The on-tap sale of state loans to raise Rs 6,200 will act as a whimper for the market as the outstanding liquidity in the system is at around Rs 5,000 crore. |
| Moreover, the credit offtake has been quite good. Fortnightly growth has been to the tune of Rs 37,792 in non-food credit for the period ended October 15. Credit deposit ratio has gone up to 60.49 per cent and investment-deposit ratio has come down to 44.09 per cent compared with 55.48 per cent and 46.16 per cent in April 2004 respectively. |
| Therefore, the participation by the banks in the auctions and on-tap sale will be cautious. Internally most of the bank boards have asked their treasury to make available funds for credit demand. Similarly, the trading in government papers will be cautious and profit booking will follow price hikes in the gilts. |
| There is a feeling that after the quarter end is over , banks have booked depreciation losses. Except for the big PSU banks which have the legacy of owing high yield illiquid government papers to compensate for the erosion of market value for government securities, most others will have to pay for the depreciation. This has made the outlook for the government securities shaky at present. |
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