(Updates to close)
By V. Ramakrishnan
MUMBAI, May 12 (Reuters) - Indian federal bond yields fell on
Monday toward their lowest in a month as a sharp slowdown in
industrial output fuelled hopes the central bank would not raise
interest rates in the near term.
Industrial output grew 3.0 percent in March from a year
earlier, below a market forecast of 6.2 percent, as six-year high
interest rates squeezed demand for consumer goods. See:
[ID:nBOM216199]
The 10-year yield <IN082418G=CC> ended at 7.79 percent, lower
than Friday's close of 7.89 percent. It hit 7.78 percent last
week, its lowest since March 27.
Dealers said cash conditions were adequate even after an
increase in the cash reserve ratio (CRR) on Saturday and
settlement of a government bond auction on Monday, which together
drained about 190 billion rupees ($4.5 billion).
There are no bond auctions scheduled for this week.
"The market was anyway in a mood to rally and the data just
provided the support," said K. Ramkumar, head of fixed income at
Sundaram BNP Paribas, who expects the 10-year yield to hover near
7.80 percent in the coming days.
The overnight cash rates <INROND=> ended at 6.40/6.50
percent, their highest in more than a month. The central bank
accepted bids worth 42.70 billion rupees at its reverse repo
auction, sharply lower than Friday's 230.50 billion rupees.
The central bank has kept its repo rate unchanged at 7.75
percent for more than a year, after raising it aggressively
between mid-2006 and March 2007 to reduce overheating concerns in
Asia's third largest economy.
But it has been tightening monetary conditions via increases
in the CRR, or the proportion of deposits that banks must keep
aside. Last month, it announced a 75 basis point increase in the
CRR to absorb inflation-stoking surplus cash.
The CRR will rise to 8.25 percent on May 24, when the last of
the three phase increase announced in April takes effect.
($1=42 Indian rupees)
(Editing by Ranjit Gangadharan)
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Keywords: MARKETS INDIA MONEY/