)
Government bond yields are set to fall further after the Reserve bank of India (RBI) announced measures to comfort the treasury portfolio of banks and mitigate the anxiety in the bond market. The yield on the 10-year benchmark government bond 7.16 per cent 2023, which rose to an over 5-year high on Tuesday to 9.48 per cent, is expected to fall below the 8.50 per cent level tomorrow.
The yield on the 7.16 per cent 2023 government bond ended at 8.91 per cent on Tuesday compared with the previous close of 9.23 per cent. According to government bond dealers, the Street had anticipated sentiment boosting moves from RBI, and besides that the central bank was buying bonds through state-run banks on Tuesday.
In the current financial year the yield on the 7.16 per cent 2023 bond had first breached the eight per cent mark on July 16 after RBI announced the first round of liquidity tightening measures to arrest the depreciating rupee. The yield on the benchmark government bond rose by over 150 basis points on Tuesday since the start of this financial year. “The yield may fall to 8.5 per cent tomorrow and market sentiments will improve,” said Balginder Singh, government bonds dealer at Andhra Bank.
In fact the moves announced by RBI will also help the rupee to strengthen and the rupee is expected to trade below the 63 per dollar mark on Wednesday. “The rupee will strengthen by about 50 paise tomorrow,” said a currency dealer with a state-run bank.
The rupee touched a fresh all-time low on Tuesday at 64.12 due to persistent dollar demand by importers. However, dollar sale by state-run banks acting on behalf of RBI helped the rupee to recover. But despite that the rupee ended at a new all-time low of 63.23 compared with the previous close of 63.13. It had opened the day at 63.71 a dollar.
India’s foreign exchange reserves rose marginally by $1.43 billion for the week ended August 9 to $ 278.60 billion, the RBI data released on Friday showed.
Many economists are of the view that frequent intervention by RBI through state-run banks to arrest the rupee’s depreciation is not the solution.
