The 10-year benchmark government security rose 31 paise and yield declined by 5 paise amid hope that Reserve Bank may reduce repo rate in the coming June policy after the retail inflation eased in April. The benchmark 8.40 per cent-2024 bond closed at Rs 103.2175 or at a yield of 7.8981 per cent on Monday as against Friday’s close of Rs 102.90 or 7.9465 per cent.
“We expect RBI governor Raghuram Rajan to cut repo rate by 25 bps on June 2, pause to allow markets price in the Fed rate hike expected in September and then cut the rate by 50 bps in early 2016,” Bank of America Merrill Lynch said in a report.
After all, inflation is likely well set on to the RBI’s under-6 per cent inflation target with global commodity prices stabilizing on Fed tightening and the rupee stabilizing with RBI buying foreign exchange. It expects the 10-year bonds to ease to 7 per cent by March 2016.
Meanwhile, the rupee snapped its three-day winning spree against the American currency by falling 21 paise to 63.72 on fresh dollar demand from banks and importers in view of a firm dollar in the overseas market.