RBI announcements roil the markets

Our Bureau Mumbai | Updated on October 08, 2021

Rising benchmark equity indices also buoyed the rupee   -  Getty Images/iStockphoto

Bond prices decline after suspension of G-Sec Acquisition Programme

Participants in the Government Securities (G-Secs) market were disappointed with the Reserve Bank of India’s move to discontinue the purchase of G-Secs via the G-Sec Acquisition Programme (G-SAP), resulting in a fall in G-Sec prices and a rise in their yields.

The yield on the benchmark 10-year G-Sec (coupon rate: 6.10 per cent) rose 5 basis points and its price declined 36 paise to close at 6.3178 per cent and ₹98.42, respectively, vis-a-vis the previous close.

Bond yields and prices are inversely co-related and move in opposite directions.

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Higher Brent crude oil prices and its possible inflationary effect on the economy added to the negative sentiment in the bond market.

Knee-jerk spurt

“In what is being perceived as a tapering signal, the RBI suspended the bond purchase program i.e., G-Sec Acquisition Program (G-SAP). There was a knee-jerk spurt in G-Sec yields, especially long end, before stabilising.

“Compared to a few of the regional high yielders, India’s recovery from the Delta hit has been stronger, providing room for the RBI to tolerate higher rates and yields in the coming months as rising oil costs bite,” said Radhika Rao, Economist, DBS Group.

Rao observed that the generic 10-year yield has risen 25 basis points since mid-2021, while the 2-year yield has stopped falling and has been rising since September.

“We look for the yields to shift up further by end-year,” she said.

Weaker rupee

Meanwhile, the rupee closed 20 paise weaker at 74.99 to the dollar against the previous close of 74.79 as Brent crude oil rose beyond $83 a barrel.

The rupee opened at 75.0050 per dollar. Intraday, it tested a high of 74.9150 and a low of 75.1600.

IFA Global, in a report, said the Indian rupee traded higher but recovered some losses against the dollar and became steady in the later session because sentiment for the currency improved after RBI Governor Shaktikanta Das announced that the MPC has decided to maintain the accommodative policy stance.

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“The Indian currency also got support from a rise in domestic benchmark equity indices.

“All eyes are now on the key non-farm payrolls data in the US, scheduled for release later today, which could provide additional cues on the timing of the US Federal Reserve’s next moves on tapering its massive monthly asset purchases,” the report said.

Published on October 08, 2021

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