Bond yields fell on Wednesday as traders expected the current easy money conditions to continue after a top government economic adviser said monetary policy tightening would likely be on hold until March 2010.
The 10-year benchmark bond closed at 7.35%, after falling as low as 7.33%, below Tuesday’s closing of 7.41%.
“The stance of monetary policy will have to change from its highly accommodative position. But that has to wait. It will depend on the growth prospects of the economy and also inflationary pressures,” C Rangarajan, who heads a government panel that advises the prime minister, said on Wednesday.
Meanwhile, rupee fell to its lowest in more than a week on Wednesday, as a fall in local share prices turned sentiment cautious about the direction of fund flows and some banks bought dollars cheaper to arbitrage offshore. It ended at 46.485/495 per dollar, off an early low of 46.52, its weakest since Oct 12 and 0.8% below its Tuesday’s close of 46.11/12. “Nothing much is expected from the policy and the central bank’s statements are likely to be similar to the RBI governor’s speech in Istanbul,” said Srinivasa Raghavan, treasury head at IDBI Gilts.
“The hawkish stance would help the market to prepare for a policy withdrawal eventually,” Raghavan said.
At its policy review on Oct. 27, the Reserve Bank of India (RBI) is expected to keep the benchmark lending and borrowing rates on hold.