Fluctuation in bond yields

CRR HIKE FALLOUT

Both the government securities and the foreign exchange market reacted to the Reserve Bank of India's decision on Saturday to hike the CRR of banks.

The yield on the 10-year benchmark 7.37 per cent 2014 paper jumped to an intra-day high of 6.20 per cent, but closed at 6.10 per cent. Last Friday, it had closed at 5.93 per cent. The yield on corporate bonds, too, rose.

The spot rupee, on the other hand, moved high in a bullish market, which interpreted the CRR hike as a signal for a possible tightening of interest rates and will work as an incentive for foreign investors to bring in funds. The spot rupee opened at 46.24/25, but closed higher at 46.17/18 to a dollar.

"Till a few months back, there was abundant liquidity in the system and the RBI could have raised the CRR. Now, when the credit has started picking up, squeezing out lendable resources through a CRR hike will be detrimental to the economy as a whole," said a bond dealer.

The prices of long-term securities fell by almost Re 1 in early trades but recovered in the latter part of the day, ending with a net loss of 50 paise.