Bond yield further down, Re stable

Mumbai, Aug 30 | Updated: Aug 31 2006, 05:30am hrs
The federal bonds trimmed early gains on Wednesday after the central bank emphasised that inflationary pressures continued to haunt policymakers, prompting concerns of a likely rate rise in the near term.

In view of the international oil prices remaining high and volatile, the outlook on inflation as well as choice of the appropriate manner of dealing with the pass-through of oil prices remains clouded, the Reserve Bank of India said in its annual report for 2005-06.

The yield on the Indian benchmark 10-year bond ended at 7.93%, lower than the previous close of 7.95%, but above an intra-day low of 7.91%. The growth momentum is still strong and oil prices are still around the $70 mark and that may just tilt the scales in favour of a rate hike in October, said a senior trader at a foreign bank.

Call rates in the inter bank money market ended range-bound at 6.00-6.10%. The RBI absorbed Rs 25,785 crore through its first reverse repo auction and another Rs 20,890 crore through its second reverse repo auction on Wednesday.

The Indian rupee ended marginally weaker on Wednesday as fresh dollar supplies were bought by oil importers and foreign banks, who were keen to arbitrage in the offshore non-deliverable forward (NDF) market.

Dealers said there was mild dollar selling by exporters, but the U.S. unit saw good demand from oil firms keen to buy crude at lower levels. At the same time, foreign banks bought dollars after sighting some differentials in the offshore market.

The rupee ended at 46.51/52 per dollar, down from 46.47 in early deals, but only a tad lower from the previous close of 46.50/51. The Indian unit has appreciated 1.16% from a three-year low of 47.04 hit last month, but is still 3.14% lower during the year.

The trade in todays session was more a play of demand and supply. I would say the dollars weakness helped to a large extent in checking the rupees losses, said a dealer with a private bank. The usual month-end dollar demand was there. But trade was rather dull, he added.

The euro hit a one-week high against the dollar, on expectations of an increase in eurozone interest rates. The pound sterling was at a three week high against the dollar.