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Bonds Cheer RBI's Status Quo

The RBI kept the reverse repo rate unchanged at 5 per cent. This cheered the market participants, as yields on gilts shed in excess of 15 basis points

Bond markets surged during the week ended July 29, 2005. The RBI kept the reverse repo rate unchanged at 5 per cent in the credit policy review during the week. This cheered the market participants, as yields on gilts shed in excess of 15 basis points.

Bond markets started off the week on a dull note, ending almost flat on Monday. The sentiments remained cautious and the market participants preferred to stay on the sidelines, just ahead of the credit policy review. The RBI left the bank rate and reverse repo rate unchanged at 6 per cent and 5 per cent, respectively in its quarterly review of the Annual Statement on Monetary Policy for the year 2005-06 announced on Tuesday. The RBI stated that domestic factors favoured stable rates and it is intact on its stand that the wholesale inflation rate would be in the range of 5.0-5.5 per cent at the end of the fiscal year in March 2006. This propelled a good trading interest in the market as the volumes in the wholesale debt markets touched Rs 7,834.2 crore by the end of the day. The yields on all major benchmark gilts shed in excess of 15 basis points. The yield on the 2015 GOI 7.38 per cent bond also dropped by a massive 17 basis points to 7 per cent. The markets remained closed on Wednesday and Thursday. On Friday, the bond prices continued to move up. The yield on the benchmark 2015 GOI 7.38 per cent bond shed another four basis points to end the week at 6.96 per cent.

Inflation for the week ended July 16, 2005, rose to 4.18 per cent, as against previous week's 4.14 per cent. The rise came on the back of higher prices of a variety of goods like primary products, fuels and manufactured products.

Oil prices rebounded during the week. Fire that broke out in a couple of US refineries revived supply concerns. Brent crude prices moved up during the week to close at $59.18 per barrel on Friday.

Rupee remained range bound during the week. Earlier during the week, the Indian currency traded marginally weaker against the US dollar. However, after the two day holiday, rupee recovered on the back of inflows and easing dollar purchases. On Friday, rupee closed at 43.49 per US dollar.

Call rates remained steady at 5-5.10 per cent during the week. Liquidity was comfortable throughout the week. As on July 25, 2005, the cumulative borrowing and lending figures in the call money market stood at Rs 14,649.34 crore and Rs 14,649.34 crore on a weighted average rate of 5.04 per cent and 5.04 per cent, respectively.

Outlook

With the credit policy review providing a strong momentum to the market, the outlook for the coming week broadly remains positive, in the absence of any major cause of concern. However, traders will carefully watch the movement of oil prices, as the recent surge can cause some worries. The markets will also look forward to any announcement regarding the twin auction worth Rs 8,000 crore scheduled between August 5-12, 2005.