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Stocks surge, yields on bonds wobble

Markets cheered move as rate-sensitive stocks rose and government bonds rallied with decision on status quo in rates

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Our Special Correspondent



Published 07.04.23, 04:32 AM

Retail borrowers and India Inc have heaved a sigh of relief after the RBI decided to keep its rates unchanged.

The markets also cheered the move as rate-sensitive stocks rose and government bonds rallied with the decision on the status quo in rates.

At the bond markets, yields (which move in the opposite direction to their prices) of the benchmark 10-year security fell to a day’s low of 7.1469 per cent, the lowest since September 15 after the RBI’s move. It stood at 7.28 per cent before the announcement. It ended at 7.21 per cent against the previous close of 7.27 per cent.

Analysts said government security prices will unlikely see major gains in the coming days given the heavy borrowing programme.

According to Abheek Barua, chief economist, of HDFC Bank, yields on the 10-year security could see some pressure returning once the government commences borrowings. He expects the security to trade in a range of 7.20-7.30 per cent in the first quarter.

“RBI unexpectedly triggered a pause button on rates after 250 basis points of repo rate increases. No change in stance means RBIs are prepared to act if the need arises. While pause doesn’t mean pivot yet, global central banks’ actions will hold the key going forward. Bond yields after initial euphoria may look to oscillate basis demand-supply in upcoming auctions,’’ Lakshmi Iyer, CEO — of investment and strategy — at Kotak Investment Advisors, said.

The stock markets saw investors chasing banks, auto and real estate stocks as the RBI’s decision was seen as having a salutary impact on these sectors. It is expected that the rate pause may reflect positively on the offtake of loans, particularly by retail borrowers.

The benchmark Sensex overcame initial weakness but closed with gains of 143.66 points or 0.24 per cent to settle at 59832.97 points. 

Economists are betting on an extended period of unchanged rates as inflation is expected to moderate.

Radhika Rao, executive director and senior economist at DBS Group Research, said that while the monetary policy committee highlighted that it would not hesitate to take further action as may be required in its future meetings, thus leaving the door open for further rate adjustments, “the bar for a return to hikes is high’’.

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