Bond yields were little changed on Tuesday, with prices supported by expectations the central bank would not raise interest rates at its policy meeting at the end of the month.
C Rangarajan, who heads the Prime Minister?s economic advisory panel, joined the growing chorus of policymakers for holding rates to help a nascent economic recovery.
The adviser however said the monetary authority may have to drain excess cash to smother inflation expectations.
The yield on the most-traded 6.35%, 2020 bond closed at 7.64%, up one basis point from Monday.
The rupee erased most of its gains after rising to a one-month high early, as a weaker dollar and firmer stocks were offset by expectations among local traders of some recovery in the US currency in the near term.
?Banks unwound long rupee positions on expectations the dollar could recover after falling so sharply in the recent past,? said a trader with a private bank. It ended at 46.24/25 per dollar after hitting 46.0850, its strongest since Dec 3.
It had ended at 46.29/30 on Monday. A rise in local equities also triggered demand for the rupee early. The benchmark index rose 0.7% to its highest close in 22 months as expectations of an economic recovery boosted demand for shares.