Bond markets stayed at about the same level last week. The yield on the benchmark government security (GOI 2015 7.38%) fell by 1 basis point to 7.04 per cent over previous Friday. A hike in petrol and diesel prices on September 6 did not impact bond prices as the market expected the hike. The good news of the week was falling global crude oil prices.
It was a curtailed week of trading with a public holiday on Wednesday on account of Ganesh Chaturthi. The government increased petroleum product prices by 7 per cent on Tuesday. Petrol prices were hiked by Rs 3 and diesel prices were increased by Rs 7. India imports 70 per cent of its crude oil requirements and domestic refining companies have been under tremendous pressure as crude prices have gone up.
Brent crude prices fell from $67.1 a barrel in the previous week to $63.84 a barrel. In order to bridge the deficit in the oil pool account, the government will issue 7 per cent oil bonds amounting to Rs 5762.85 crore.
So far, inflation has been benign. For last week, inflation fell to 3.01 per cent from 3.08 per cent. Crude oil prices fell in the international market. Finance Minister P Chidambaram said that both the government and the Reserve Bank of India will be taking necessary steps to contain inflation. A Planning Commission member has said that the fuel price hike may increase wholesale price inflation by 1.5 per cent.
The rupee continued to appreciate against the dollar as foreign inflows were robust. The dollar fell from Rs 43.95 on previous Friday to Rs 43.81. The government conducted a Rs 8000-crore auction. It raised Rs 5000 crore through a 13-year-bond at a cut-off yield of 7.23 per cent and Rs 3000 crore through a 30-year-bond at a cut-off yield of 7.4 per cent. Liquidity has remained ample. Call rates has remained between 4.95 and 5.1 per cent.
Outlook
The Finance Minister has said that he does not anticipate any additional borrowing by the Centre. After Hurricane Katrina, the US Federal Reserve will not hike interest rates. This has lightened the pressure on an interest rate hike across the world. There are expectations that RBI will not be hiking rates in the near term, which will help in interest rates staying at current levels.
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