Banks expect rates to remain stable this year

RBI Governor D Subbarao’s statement on Tuesday about an early exit from the accommodative monetary policy sent bond yields soaring and it seemed to have belied bankers’ expectation that the rate would remain unchanged in the near term.

Speaking at the G-30 international banking seminar in Istanbul, Subbarao said policy rates (in India) may have to be tightened ahead of those in advanced economies. Yields on the 10-year benchmark paper closed at 7.24% against 7.16% on Monday as treasury managers anticipated a hike in the benchmark rates and a resultant fall in bond prices. Yields on bonds move inversely to their prices. The yields also moved as state governments borrowed another Rs 9,000 crore from the markets. The rupee too jumped 1.3% to 46.88 a dollar, the strongest level since Oct. 1, 2008.

Bankers, however, said they do not expect a rate hike anytime soon. The RBI will announce its mid-year review of the monetary policy on October 27.

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