The 10—year benchmark government security rose 31 paise on Monday on the hope that Reserve Bank may reduce repo rate in the coming June policy after Finance Minister Arun Jaitley said he expects RBI to cut rate, and also as the retail inflation eased in April.

The benchmark 8.40 per cent—2024 bond closed at Rs 103.2175 or at a yield of 7.8981 per cent today as against Friday’s close of Rs 102.90 or 7.9465 per cent.

“Market is looking at a rate cut in June after Finance Minister said he expects RBI to cut rate,” said a dealer with a state—owned bank.

In an interview to the PTI, Jaitley had said that his “expectation” from RBI Governor Raghuram Rajan was the same as general expectation of interest rate cut.

“My expectation is the same as your expectation,” he said when asked about what he expected the RBI to do in the June 2 policy review.

The Reserve Bank has cut repo rate, currently 7.5 per cent, twice in 2015 so far.

In a note today Bank of America Merrill Lynch today said “We expect Governor Rajan to cut 25 basis points on June 2, pause to allow markets price in the Fed rate hike expected in September and then cut 50 basis points in early 2016.”

Market participants said view on a rate cut during the second bi—monthly monetary policy review to be held on June 2 has also been strengthened by ease in retail inflation in April.

“I think this (rise in 10-year bond price today) is a late reaction to the (CPI) inflation data. There is an increased possibility of a 25 basis points rate cut next month,” said Harihar Krishnamoorthy, Treasurer at FirstRand Bank.

Related Topics