RBI cuts repo rates again as rupee settles

RBI cuts repo rates again as rupee settles

OCT 9: The Reserve Bank of India (RBI) has cut yields at its repo auctions on Monday, following on the heels of reductions last week, in what traders said was a sign of its comfort with the rupee's recent stability against the dollar. The RBI lowered the yield on the one-day repo auction held under the Liquidity Adjustment Facility to 8.75 per cent from 9.00 per cent on Friday. It accepted five bids for Rs 1,370 crore, of a total of six bids received for 13.80 billion.

Traders said ample domestic money market liquidity could have also prompted the RBI to cut repo rates. Dealers said they expected further cuts in the repo rates, the benchmark for short term rates.

"The RBI must be more comfortable with the rupee's level on account of the (expected) inflows from the India Millennium Deposit (IMD) plan which is acting as a comfort," said Narendra Gupta, head of domestic treasury at private sector ICICI Bank.

"It looks like the RBI is signalling lower interest rates," Gupta said and added he expects the RBI to align the repo rates with its bank rate - the benchmark reference and refinance rate which is currently eight per cent.

Dealers said the lowering of rates and improved liquidity conditions would improve bond market sentiment, which had already been boosted by last week's rate cuts. They however ruled out a sustained bull-run in the bond market as there was excess supply of securities, a fallout of the government's massive budgeted borrowings of Rs 1,17,000 crore for the current financial year (April-March).

The central bank introduced the additional repo auctions and hiked rates in August as part of a support package for the currency, which had come under pressure in recent months because of a spiralling oil import bill and sluggish capital inflows.

It had begun to lower rates from late August when the rupee showed some signs of stability but stopped when a fresh bout of volatility began. The rupee has recovered from a lifetime low of 46.41 per dollar on September 20 after the country announced plans for a deposit issue to be floated by the State Bank of India.