Home Market Borrowing cost may fall with sliding bond yields

Borrowing cost may fall with sliding bond yields


MUMBAI: Cost of borrowing in India should fall across the board, tracking the recent slide in government bond yields, with the latest debt purchases by the central bank and softening prices of crude oil set to lower the broader market rates.

NBFCs that have recently battled a funds crunch should also benefit. The RBI decided to purchase government bonds worth Rs 40,000 crore through open market operations in November, a move that should increase cash availability in the banking system and stabilise rates. The benchmark b o n d yield dipped as much as eight basis points to 7.8 per cent Monday and ended at 7.81 per cent, the lowest since Aug 10 this year. Bond yields and prices move in opposite directions. Dealers expect the sovereign gauge to touch 7.7 per cent in the next few weeks if crude oil prices remain under control. Global crude oil prices have lost more than 10 per cent in the past one month to trade around $77 per barrel now. “People are ruling out a rate increase in the next policy,” said Sandeep Bagla, associate director at Trust Capital. “Inflation is subdued and the retail gauge is likely to be well below the projected figure. Globally, growth is slowing down lowering inflationary pressure.”

Some market participants expect consumer prices to rise 3 per cent by December-end compared with 4 per cent as projected by the central bank. In September, consumer prices rose 3.77 per cent from a year earlier, compared with a 3.69 per cent increase in August.

“Some banks seem to have booked profits with falling yields while companies may be encouraged to tap the bond market now,” said Vijay Sharma, head of fixedincome at PNB Gilts. “Clearly, market sentiment has turned positive unless it is again marred by any sudden spike in crude oil prices. RBI bond purchases are expected to rise in coming months.” Open market operation is an RBI mechanism to infuse or draw down liquidity from the system. In October, RBI announced a Rs 36,000-crore OMO purchase.

Original Article