Gilts edge up as Bank of England lowers rates

Mumbai , August 4 | Updated: Aug 5 2005, 05:44am hrs
Gilts inched up on Thursday in the last one of the trading session in wake of Bank of England (BoE), cutting its interest rates for the first time in two years.

The BoE cut interest rates by a 25 basis points to 4.5% from the earlier rate of 4.75% after household spending and business investment growth slowed. Although Reserve Bank of India (RBI) weighs domestic factors like inflation and growth more heavily when framing monetary policy, it also considers the global interest rate scenario. With BOE cutting the interest rates, the RBI would be under less pressure to increase the reverse repo rate in its next monetary policy review.

The cut in rate by BoE signalled send positivity on the bond street by giving a respite to the bond investors. This was evident by the fact a heavy buying was witnessed by bond market participants after the announcement in the rate cut by BOE . This brought down the yield of the benchmark 10 year government security from 7.38% to 6.97%.

Although a slight easing in global oil prices and lower yields on US treasuries added to the positive sentiment comforting debt investors, but still the undertone was cautious as the market waits for an announcement of a bond auction scheduled to take place by Aug 12. The government is set to borrow Rs 8,000 crore at the auction, Rs 5,000 crore of which is slated to be through debt in the highly liquid 10-14 years maturity segment.