Government bonds fell, pushing yields to their highest level in almost four months, after the central bank boosted its benchmark lending rate by more than most economists predicted.
The Reserve Bank of India lifted the repurchase rate by 0.5 percentage points to 7.25 percent on Tuesday, the ninth increase since the beginning of last year. Seven of 25 economists surveyed by Bloomberg expected the move, with 18 forecasting 0.25 percentage point. Oil companies may increase fuel prices this month, which would create more inflationary pressure, said A Y Shedshale, a Mumbai-based deputy general manager in charge of fixed-income at Bank of Maharashtra.
“Investors are probably pricing in a hike in fuel prices,” he said. “The aggressive rate increase has damped demand for debt.” The yield on the 7.80 per cent note due April 2021 rose one basis point to 8.24 per cent as of 10:03 am in Mumbai, according to the central bank’s trading system. The rate is the highest for a 10-year security since January 10.
RUPEE GAINS
The rupee gained, snapping a two- day decline, on speculation local exporters would convert their overseas earnings into local currency to take advantage of a favorable exchange rate.
Companies with overseas income may increase dollar sales after the rupee touched the weakest level in more than a week early on Wednesday, said J Moses Harding, a Mumbai-based executive vice-president at IndusInd Bank Ltd. A weaker rupee boosts the value of export earnings in local-currency terms. “The rupee continues to maintain a positive bias and exporters would find current levels quite attractive to sell their dollars,” Harding said.
The rupee climbed 0.1 per cent to 44.465 per dollar at close in Mumbai, according to data compiled by Bloomberg. It fell to 44.62 earlier, the weakest since April 26.
CALL RATES RISE
Call rates climbed up on Wednesday on the back of higher-than-expected rate action by the central bank in its annual monetary policy on Tuesday.
Call rates ranged between 6.75- 6.85 per cent, higher than its previous close of 6.40/50 per cent. “One or two days, it would remain at current levels, but after that, it would go beyond 7 per cent. People are in surplus temporarily. So once that goes out, the call money rate will track repo rate,” said a trader with a state-run bank.
