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Surprise CRR cut of 75bps; Yields to recover from poor cutoff driven fall
In a hugely surprising move, the RBI cut the CRR after market hours by a massive 75bps to
4.75%. This step comes just days before the policy review where the market was
expecting a 50bps CRR cut. The RBI might have made this decision in advance given the
liquidity strain in the system and the upcoming pressure of advance tax flows from next
week. The cut comes into effect immediately and will inject INR 480bn into the system.
The bond markets had no indication of this move and were trading very weak during the
day, yields spiking up by more than 5bps. The 10-Y G-Sec closed the day at 8.28% vs
8.24%, hitting a high of as much as 8.31%. The spike was driven by trimming of positions
before upcoming policy events and the bond sale auctions settling at higher cut-offs.
Overall sentiment should get a boost with the unexpected CRR cut and the policy might
cease being a factor for the markets as rate action is unlikely in this policy.
AUCTION RESULTS: The RBI set a cut-off of 8.62% for the 8.24%, 2018 bond, 8.27% for
the 8.79%, 2021 bond and 8.34% for the 8.83%, 2041 bond. Whereas, in the OMO the RBI
bought securities worth INR 116bn vs the notified INR 120bn, the cut-offs being in line.
The tail end of the OIS market headed higher with revival of global risk appetite and in
tandem with domestic yields. The 1Y OIS traded flattish at 8.16-8.21% vs 8.15-8.19%
while the 5-Y swap was at 7.46-7.53% vs 7.41-7.45%.
Non-SLR Market
Corporation Bank placed 3M CD worth INR 2bn @ 11.20%. Bank of India placed same tenor
@ 11.25% for INR 7.5bn. Allahabad Bank placed 6M CD worth INR 3bn @ 11.10%.
Money Market
3-day call rates ended down with the call WAR at 8.84% vs 8.88% - this being the last day of
the reporting fortnight, there was not much borrowing pending. LAF borrowing at the 2
windows combined was INR 1.3tn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Surprise CRR cut of 75bps; Yields to recover from poor cutoff driven fall
In a hugely surprising move, the RBI cut the CRR after market hours by a massive 75bps to
4.75%. This step comes just days before the policy review where the market was
expecting a 50bps CRR cut. The RBI might have made this decision in advance given the
liquidity strain in the system and the upcoming pressure of advance tax flows from next
week. The cut comes into effect immediately and will inject INR 480bn into the system.
The bond markets had no indication of this move and were trading very weak during the
day, yields spiking up by more than 5bps. The 10-Y G-Sec closed the day at 8.28% vs
8.24%, hitting a high of as much as 8.31%. The spike was driven by trimming of positions
before upcoming policy events and the bond sale auctions settling at higher cut-offs.
Overall sentiment should get a boost with the unexpected CRR cut and the policy might
cease being a factor for the markets as rate action is unlikely in this policy.
AUCTION RESULTS: The RBI set a cut-off of 8.62% for the 8.24%, 2018 bond, 8.27% for
the 8.79%, 2021 bond and 8.34% for the 8.83%, 2041 bond. Whereas, in the OMO the RBI
bought securities worth INR 116bn vs the notified INR 120bn, the cut-offs being in line.
The tail end of the OIS market headed higher with revival of global risk appetite and in
tandem with domestic yields. The 1Y OIS traded flattish at 8.16-8.21% vs 8.15-8.19%
while the 5-Y swap was at 7.46-7.53% vs 7.41-7.45%.
Non-SLR Market
Corporation Bank placed 3M CD worth INR 2bn @ 11.20%. Bank of India placed same tenor
@ 11.25% for INR 7.5bn. Allahabad Bank placed 6M CD worth INR 3bn @ 11.10%.
Money Market
3-day call rates ended down with the call WAR at 8.84% vs 8.88% - this being the last day of
the reporting fortnight, there was not much borrowing pending. LAF borrowing at the 2
windows combined was INR 1.3tn.
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