A day after the RBI cut marginal standing facility (MSF) rate by 50 basis points,prices of government securities rose and yields declined. The Sensex gained 88 points at 19,983.61 while the rupee closed unchanged at 61.79.
The 7.16 per cent government security maturing in 2023 climbed to Rs 91.33 from Rs 90.19 yesterday,while its yield fell to 8.50 per cent from 8.68 per cent. The 7.28 per cent government security maturing in 2019 moved up to Rs 94.54 from Rs 93.60,while its yield declined to 8.51 per cent from 8.73 per cent. The 8.28 per cent government security maturing in 2027 also gained to Rs 96.04 from Rs 94.30,while its yield dipped to 8.78 per cent from 9.00 per cent. The government will be the direct beneficiary of a fall in yields.
Yes Bank MD Rana Kapoor said RBIs move will reduce volatility in the interest rate market and lower the weighted cost of borrowing for banks and deepen the money market through development of term repo borrowing.
The return of rupee stability on the back of unconventional steps has provided RBI the flexibility to gradually rollback its recent tightening measures. With external sector developments showing a marked improvement and evidence on the utility of interest rate defense remaining hazy,the current set of easing measures will help RBI to focus on growth risks, Kapoor said.
I expect the overnight rates may fall from 9.5 per cent to around 8.5 per cent in the coming week. I also expect banks may get more active in the bond market as the exceptional tightening has ceased, said Arvind Chari,senior fund manager (Fixed income),Quantum MF.