The gilts market, which saw a narrow 5-10 paise swing from Monday through Friday, suddenly became buoyant on Saturday due to the announcement of a 50 basis point repo rate cut by the Reserve Bank of India (RBI).
Prices of gilts jumped by over a rupee even as the yields came off by about 15 basis points.
The RBI said that a decline in inflation and good monsoon prompted it to cut the one day and 14 day repo rate by 0.5 per cent to 4.5 per cent with effect from Monday. Reduction in the repo rate will also help in making the yield curve not as flat as is the case now, it added.
The RBI last reduced the repo rate by 0.5 per cent to five per cent with effect from March 3, 2003. The annual rate of inflation which was about 6.7 per cent as on April 5, has progressively come down to 3.95 per cent on August 9, 2003.
Monsoon also has been good and its wide coverage has raised expectations of a good kharif crop. The central bank, had in the recent past, pointed out that it was closely watching the movement of inflation and behaviour of monsoon before taking any decision on repo rate.
On Monday, the state development loans, 2015, for Rs 8,000 crore would be sold on-tap at 6.2 per cent. In the backdrop of the good monsoon and declining inflation, RBI governor Bimal Jalan had, on Friday, hinted at revising upwards the gross domestic product growth rate for fiscal 2003-04 during the mid-term review in October.
In the forex market, the rupee ended at 45.8300/8350 per dollar, sharply higher from previous weekend levels of 45.9050/9150.
Intermittent dollar demand from corporates and importers and central bank intervention threatened to cap the rupee
