The Hindu Business Line : ‘CRR hike will have no major impact on bonds, rupee’

Mumbai, April 17 The rupee may slightly appreciate and bond prices could harden further by 7-10 basis points, following the hike in the Cash Reserve Ratio (CRR) by the RBI.

Market participants said that since the CRR hike had been partially factored in, there may not be a major impact.

“There may not be massive sell-off in the bond market. Yields on bonds could harden by around 7-10 basis points while interest rates on swaps could edge up by 5-10 basis points, reacting to the hike,” said Mr Ajay Mahajan, Group President, Financial Markets, Institutions & Investment Management, YES Bank

The hike will dampen sentiments as there is a scheduled auction of Rs 10,000 crore on Monday. Dealers said that the 10-year bond could see its yield hardening to 8.25 per cent, from the current 8.08 per cent in the short term.

Liquidity move

Treasury officials, however, believed the rupee may not appreciate by more than a few paise as a CRR hike is more of a liquidity management exercise.

“The rupee may tend to appreciate in the short term. But the rising price of global crude, widening trade deficit, slowing down of capital flows and the overall cooling down of the economy may cause the rupee to weaken in the medium term,” said Mr R.V.S. Sridhar, Senior Vice-President (Treasury), Axis Bank.

Repo hike?

The CRR hike has now raised expectations of a hike in repo and reverse repo in the monetary policy on April 29.

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