The hope for a cut in either the cash reserve ratio (CRR) or the repo rate is expected to result in gilt yields falling further this week. The yield on the 10-year benchmark gilt 8.15 per cent 2022, which ended at 8.13 per cent on Friday compared with its previous close of 8.14 per cent, might drop closer to 8.05 per cent during the week.
“The yield on the 10-year benchmark gilt will trade in the range of 8.05-8.15 per cent. The yield will fall further due to expectations of a rate cut by the RBI,” said a gilts dealer with a public sector bank.
CRR is the proportion of total deposits a bank has to keep with the Reserve Bank of India (RBI) as cash, while the repo rate is the rate at which banks borrow from RBI. In the second-quarter review of the monetary policy to be detailed on October 30, many economists are hopeful of a cut by 25-50 basis points in CRR, currently at 4.5 per cent of banks’ net demand and time liabilities (NDTL).
However, the rupee is expected to weaken further from current levels against the dollar. According to dealers, there is a lot of dollar demand by oil importers. The dollar is also in demand due to government debt repayments, defence-related dollar bids and foreign currency convertible bond repayments. “The way the demand for dollar is continuing, the rupee may hit Rs 54.25 per dollar in the next two trading sessions,” said Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai.
The rupee ended at Rs 53.84 against the dollar on Friday, compared with its previous close of Rs 53.41. The fall in the rupee was due to dollar demand and weak local share indices. Last week, RBI Deputy Governor H R Khan had assured that if there were extreme volatilities, the central bank would intervene.
