The rupee on Tuesday closed at a near-three week high against the US dollar at 67.90 as against the previous close of 68.22, marking the highest daily gain in more than one-and-a-half months, ahead of the monetary policy to be announced on Wednesday.
The monetary policy committee, which started its two-day meeting on Tuesday, will vote on the Reserve Bank of India’s policy action. According to most market participants, the RBI is slated to cut its benchmark repo rate, which currently stands at 6.25%, by 25 basis points.
Some experts have also said given the impact of demonetisation of higher-denomination currency notes on overall consumption, the RBI may even reduce rates by 50 bps.
“In our view, while a case for 50-bps cut in the policy rate can be made if one takes a really dire view of the impact of demonetisation, there are too many balls up in the air at this time,” HDFC Bank said in a pre-policy report on Tuesday.
The 10-year benchmark bond closed at 6.20% on Tuesday, down 1 bps from the previous close, supported by buying from domestic banks. At this level, the benchmark yield is lower than the RBI’s repo rate, which also makes for a strong point in the case for a rate cut.
Government securities of other tenures also closed higher than their previous closing levels, with the 5-year and 3-year gilt yields ending at 6.15% and 5.99%, lower by 2 bps and 3 bps, respectively. The 2-year and 1-year gilt yields closed at 6.00% and 6.16%, down 5 bps and 4 bps, respectively.
Call money rates and CBLO rates ended higher.