The 50 basis points hike in repo and reverse repo rates caught the forex markets unawares, with bond yields rising by 12-13 basis points.
The yield on the 10-year benchmark surged to a level seen more than a month ago.
Mr Jayesh Mehta, MD and Country Treasurer, Global Markets Group, Bank of America, said that the hike was unexpected.
“The 10-year may peak at 8.5 per cent and settle at around 8.35 levels. Going ahead, the yield curve will become flatter as rates at the shorter end are going up, while rates at longer end are still flat,'' he said.
Going ahead, the RBI will have to step in to support the extra government borrowing, he added.
On Tuesday, the total traded volumes on the order matching system were to the tune of Rs 12,530 crore (Rs 7,570 crore).
The yields on the benchmark 7.8 per cent-10-year -2021 paper opened at 8.31 per cent and closed at 8.44 per cent, 13 basis points higher from the last previous yield of 8.29 per cent
The second most actively traded 8.08 per cent-11-year-2022 paper opened at 8.42 per cent YTM and closed at 8.53 per cent YTM.
Rupee
The rupee strengthened against the dollar on anticipation that higher interest rates will attract funds from foreign investors, said dealers.
The rupee opened at 44.32 and closed at 44.18, higher by about 22 paise from the previous close of 44.40.
In the global market the dollar was also weak against other currencies like euro. In the forward premia market, the one-year premium closed at 5.67 per cent (5.35 per cent).
Call
Call rates moved up to align with the new repo rate.
The inter-bank call rate closed at 7.65-7.9 per cent, against the previous close of 7.55 – 7.6 per cent.