Gilt yields are expected to ease further amid hopes that the Reserve Bank of India (RBI) will purchase gilts through open market operations (OMOs).
OMO is the buying and selling of government securities in the open market by the central bank to adjust the rupee liquidity conditions in the market.
According to Prasanna Patankar, senior vice-president at STCI Primary Dealer, the yield on the 10-year benchmark gilt 8.15 per cent 2022 is expected to trade in the range of 8.17-8.22 per cent this week. It had ended at 8.20 per cent on Friday, up from the previous close of 8.19 per cent. “We expect OMOs to start somewhere close to Diwali or thereafter. That will keep the prices supported,” said Patankar.
In the second-quarter monetary policy review on October 30, the RBI had cut the cash reserve ratio (CRR) by 25 basis points to 4.25 per cent of net demand and time liabilities (NDTL), with effect from the fortnight beginning November 3. The CRR cut will release Rs 17,500 crore, but a large part of it will be taken on Monday due to payment by successful bidders towards Friday’s gilt auction worth Rs 13,000 crore.
According to Patankar, the trigger for OMOs will be the RBI’s daily liquidity adjustment facility (LAF) amount. “The moment liquidity starts inching towards the Rs 1,00,000-crore mark, that is the time the market will expect OMOs,” said Patankar.
The rupee is expected to weaken this week. According to Sandeep Gonsalves, forex consultant and dealer, Mecklai & Mecklai, it may even breach the 54 per dollar mark again. “All dollar supply which is coming from IT companies, foreign institutional investors and exporters are getting absorbed by oil companies and external commercial borrowings repayments,” said Gonsalves.
The rupee had ended at 53.81 against the dollar on Friday, compared with its previous close of 53.71. According to Gonsalves, this week the rupee is expected to trade in the range of 53.50-54.25 against the dollar.
According to Parthasarathi Mukherjee, president - treasury and international banking, Axis Bank, the rupee movement is largely sentiment-driven and there is not much flow in the market. Mukherjee also expects the rupee to trade in the range of 53.50-54.25 against the dollar this week.