RBI has cut interest rates by 0.5%. The repo rate is now 5% and reverse repo at 3.5%.
The 10 year bond yield had spiked back to 6.46% after a few days of continuous falling down to 6.3%. That was before this rate cut announcement though, and tomorrow – March 5 – is also when RBI buys back upto 9,000 cr. of bonds from the market.
Interestingly, on March 6, RBI will sell another 12,000 cr. worth of bonds.
I think the RBI shouldn’t announce market buying – just go ahead and buy, if you’re a market player. No point opening your hand.
Bond yields are likely to be very volatile over the next two days. Inflation data will be out tomorrow – and is likely to stay at the 3% level. If it falls lower, will RBI reduce rates more? I believe that at this point, RBI is driven by fire fighting rules – unless there is a fire, don’t fight it.
I have a gut-feeling that we’re going to have a fairly big fire soon. Some extremely big player – bank or real estate player or NBFC – is likely to announce serious distress, which brings the markets back down to it’s knees and creates some level of panic. This will be the trigger for future action. [And I’m happy for it – I just want all the bad news to come and go, staying hidden just delays recovery]
Meanwhile, the stock markets are bound to perk up, at least a little, given the 2% move in the US markets. For the short term, this is bound to give a little relief to the massively overused red pixels on traders’ monitors.
