Government bond yields fell almost 20 basis points today because the Reserve Bank of India’s 100-bps cut in banks’ Cash Reserve Ratio (CRR) improved the liquidity outlook and prompted investors to buy, dealers said.
“The buying we witnessed today was more out of relief that RBI was going to help ease the cash crunch,” said R V S Shridhar, senior vice-president, treasury, Axis Bank.
The latest CRR cut announced by RBI after market hours on Wednesday was with retrospective effect from Saturday and released Rs 40,000 crore into the system.
This is the third time in nine days that the central bank had slashed the CRR to boost liquidity. Last week, RBI had reduced CRR by 150 bps.
The yield on the 10-year benchmark 8.24 per cent, 2018 paper settled at 7.73 per cent, down 19 bps from 7.91 per cent on Wednesday.
Apart from the CRR cut, government also said RBI would transfer Rs 25,000 crore of farm loan waiver money to banks immediately. This also boosted the outlook on liquidity. In addition to hope of better liquidity, expectation that domestic interest rates would soon start easing also aided buying today.
This expectation strengthened as the weekly inflation number continued to move southwards.
Inflation for the week ended October 4 released today was 11.44 per cent against the market estimate of 11.81 per cent. The inflation rate for the previous week was 11.80 per cent. “Inflation is going to come down with a cool-off in commodity prices.
