10-year yield seen at 5.60% by March

OUTLOOK/G-Secs

While the liquidity situation remains abundant, the high inflation rate has played a spoilsport.

Most of the market players have discounted the 4-4.5 per cent inflation target announced by the government as unattainable as commodity and oil prices remain firm. Market dealers are of the view that at the best the five per cent mark looks achievable.

A section of the market believes that market stabilisation bonds amounting to Rs 40,000 crore will hit the market, while another section think that the Reserve Bank of India may get an umbrella allocation under the scheme to use it as a -need-based instrument.

Market players feel that by the end of March this year, the 10-year benchmark government paper may hover around 5.60 per cent. Most of the banks agree to this view as they believe that the interest rates have bottomed out.

In justifying this view, they cited the global firming up of interest rates following the moves by the Bank of Newzealand, Australian Central Bank and Bank of England.

Moreover, along with market stabilisation bonds , there is a good economic growth round the corner and non-food bank credit has been growing consistently and may pick up further.

Also, apart from retail and personal loans, a big push is expected in the infrastructure sector.

They also added that with the new government's borrowing programme in the offing, interest rates will be made to rule soft for completing the programme at low costs.