Dealers say statements by RBI’s monetary policy panel were considered more hawkish by market compared with previous policy minutes
The 10-year benchmark bond remained highly volatile during Thursday’s trading session with the yield hitting a 17-month intraday high of 7.294% before falling to as low as 7.195% in a span of less than an hour. The yield later settled to close at 7.21%. According to bond dealers, statements by the Reserve Bank of India’s monetary policy committee were considered more hawkish by the market compared with the previous policy minutes which led to the surge in yield during the initial part of the session. Michael Debabrata Patra, an executive director at the RBI, indicated in the MPC minutes that the current phase of accommodation in the monetary policy stance — reduction of the policy rate by 200 basis points — is one of the deepest, barring the easing associated with the global financial crisis. “Also, it has been more fully transmitted. In my view, this phase has matured; it is time now to signal its end and commence the withdrawal of accommodation, consistent with the evolving stance of liquidity management,” he stated. The time has come for monetary policy to take guard and be ready to go on to the front foot, he had observed. RBI deputy governor Viral Acharya had also indicated his concerns. “There seems little scope for accommodation or for change of stance at the present juncture,” he stated in the minutes.
However, the market pared losses in the evening after a report indicated the government is considering a spending cut worth Rs 30,000 crore to meet the fiscal deficit target, and it expects to raise Rs 1 lakh crore from divestment, against the budgeted amount of Rs 72,500 crore. Badrish Kulhalli, head of fixed income at HDFC Standard Life Insurance, points out that the latest minutes indicate a slightly more hawkish tone compared with the previous monetary policy meeting. “There were, possibly, some market participants who were still looking for a probable rate cut some time next year.
However, looking at the mood in the MPC, the market seems to have cut back their expectations of a rate cut and, hence, are paring their exposures. Last week, we had seen the benchmark hit the 7.25% mark before retracing. However, Thursday’s move over the 7.25% level led to triggering of stop losses, which is believed to have intensified the selling,” he said. Bond dealers pointed out that a rise in US Treasury yield along with a surge in crude oil prices had also contributed to the hardening of yields.
Rs ends 5 p higher at 64.06
The rupee on Thursday recouped some of its overnight losses and ended higher by 5 paise at 64.06 a dollar on bouts of greenback selling by exporters and banks.