UPDATE 1-Indian bonds fall after cbank caution on further easing
(Updates closing level, details)
* 10-year yield ends 2 bps higher at 7.74 pct
* RBI cuts repo rate by 25 bps, as expected
* RBI lowers banks' amount of bonds held till maturity to 23 pct from 25 pct of deposits
* Economists see scope of another 25 bps cut in repo rate
By Subhadip Sircar
MUMBAI, May 3 (Reuters) - Indian federal bond yields rose on Friday after the central bank warned it had limited room for further monetary easing while delivering a 25 basis point cut in the key lending rate in line with expectations.
The Reserve Bank of India also reduced the amount of bonds that banks can hold till maturity while leaving the cash reserve ratio unchanged, disappointing bankers.
The benchmark 10-year yield climbed as much as 4 basis points to 7.81 percent immediately after the decision.
However, yields retreated later on hopes the central bank will conduct open market operations to infuse liquidity.
RBI Governor Duvvuri Subbarao said OMOs were "as good as" a cash reserve ratio cut, "if not better", to manage liquidity.
The 10-year yield closed at 7.74 percent, up 2 basis points. For the week, it ended flat after five consecutive weeks of falls.
After trading hours, the RBI said it would buy back up to 100 billion rupees of bonds on Tuesday.
Yields rose early trading on Friday after a central bank report, released late Thursday, said that the scope for further rate cuts was limited.
The rupee and shares also extended losses after the RBI decision.
A recent fall in global commodity prices, particularly crude oil and gold, had spurred hopes that the central bank may have more room for easing to revive economic expansion.
However, the RBI warned that the risk of inflationary pressure persists despite a recent sharp decline in wholesale price index (WPI) inflation, and said a high current account deficit poses the biggest risk "by far" to the Indian economy.
The RBI said it expects the economy to expand 5.7 percent in the current fiscal year, lower than government forecasts.
Most economists now expect a 25 basis points cut in the rest of the calendar year with a fewer number calling a 50 basis points cut.
"Cautious RBI commentary today in addition to yesterday's macroeconomic report which highlighted 'very limited room' to ease rates has overshadowed relief from the 25 bps rate cut," said Radhika Rao, economist at DBS.
"As expected, the CRR was left unchanged, as policymakers seem convinced that bond buybacks and lowering of the government cash balances will be sufficient to thaw liquidity conditions and improve transmission."
The RBI also lowered the amount of bonds that banks can hold till maturity (HTM) as part of their government bond holding by 200 basis points to 23 percent. The reduction would be in a phased manner by way of at least 50 basis points each quarter beginning June, it said.
"Most banks are prepared for HTM. They have been progressively reducing HTM over the last few months," said Suyash Choudhary, head fixed income at IDFC Mutual Fund.
Swap rates were largely unaffected by the RBI move. The five-year swap rate rose 1 bp to 6.89 percent, while the near-end swap ended flat at 7.20 percent. (Additional reporting by Archana Narayanan; Editing by Sanjeev Miglani and Subhranshu Sahu)
- Tweet this
- Share this
- Digg this
- NTT DoCoMo to exit India, unload entire stake in Tata Teleservices - sources
- UPDATE 3-Apple, Google agree to settle lawsuit alleging hiring conspiracy
- Apple, Google agree to settle antitrust lawsuit over hiring deals-filing
- UPDATE 2-FCC pushes back against criticism over Internet traffic plan
- Apple, Google agree to pay over $300 million to settle conspiracy lawsuit
Japan's NTT DoCoMo will unload its 26.5 percent stake in loss-making Indian mobile phone joint venture Tata Teleservices and exit the country as it struggles with tough price competition, sources familiar with the matter said. Full Article | Quote
India may cede top rice exporter spot under Southeast Asian price onslaught. Full Article