Yield on 10-year G-Sec likely to ease by 8-10 bps on CRR cut

[1]

The yield on 10-year government bond is likely to ease by 8 to 10 basis points in the wake of 75 bps cut in the Cash Reserve Ratio announced by the Reserve Bank on Friday.

"There can be easing of around 8 to 10 bps in the 10 year G-Secs this week due to 75 bps CRR cut," Vijaya Bank executive director Subhalakshmi Panse told agencies.

The 10-year benchmark bond yield, which closed at 8.28 percent on Friday, is likely to open around 8.18-8.20 percent on Monday, she added.

The RBI in a surprise move slashed CRR from 5.5 per cent to 4.75 per cent, after the markets closed on Friday, which would infuse Rs 48,000 crore into the system.

Central Bank of India chairman and managing director M.V. Tanksale said the yield on the benchmark government securities will go down as a result of the extra liquidity which gets generated.

Oriental Bank of Commerce chairman and managing director S.L. Bansal also said the move will lead to a cooling off in the short-term rates.

According to experts, the RBI step is likely to ease the tight liquidity situation a bit, which has seen around Rs 1.5 lakh crore of borrowing by banks per day from the central bank's overnight liquidity window.

"The CRR cut will give a temporary relief to the system and 10-year benchmark bond is likely to hover around 8.15-8.25 percent in the next week," IDBI Bank treasury head N.S. Venkatesh said.

He, however, said future yields will depend on the Budget and its focus on fiscal consolidation.

"Steps that will be announced in the Budget regarding fiscal consolidation are vital and bond yield in the near-term will depend on that roadmap," he said adding the fiscal deficit target for the next year will give important cue to the bond market.

"If the government sets the fiscal deficit target at around 4.6/ 4.8 percent, bond yield is likely to ease," he said, adding anything beyond these numbers will see yield going up in the future.