RBI maintaining status quo on benchmark rates: Surprise for me - by roopa_Aluh
It was quite a surprise for me when the Reserve Bank of India maintain status quo on benchmark rates in its annual monetary policy for 2008-09. It is worthwhile pointing that the central bank hiked the cash reserve ratio (CRR) by 25 basis points (bps) to suck out excess liquidity. It has hiked the CRR by 75 bps over the last two weeks, a move that will suck out Rs 27,000 crore from the system.
The market took the CRR hike as a positive and rallied sharply post policy. As a matter of fact, bond yields came off by 25 bps on short covering and relief buying. Bond yields had risen sharply over the last two weeks on expectations of rate hikes by the RBI in the policy. Ten-year benchmark bond yields had touched highs of 8.24% on interest rate fears. The bond rallied smartly post policy to close the week at 7.85% levels, down 40 bps from highs.
Government bonds saw yields sharply down week on week. The ten-year bond (8.24% 2018) yield closed lower by 30 bps at 7.85% levels. Five-year benchmark bond (7.27% 2013) yield was lower by 22 bps at 7.87% levels. Yield on the long bond (8.33% 2036) closed lower by 23bps at 8.36% levels. The ten over thirty spread closed higher by 8 bps at 51 bps levels, while the five over ten spread inverted to 2 bps.