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Last Updated : Apr 05, 2016 10:54 AM IST | Source: CNBC-TV18

Bond yields unlikely to move should RBI cut 25 bps: Federal Bank

A 25 basis point cut by the Reserve Bank of India has already been factored in by bond markets, and yields are unlikely to move by much should it take place, says Federal Bank Executive Director Ashutosh Khajuria.


A 25 basis point cut by the Reserve Bank of India has already been factored in by bond markets, and yields are unlikely to move by much should it take place, says Federal Bank Executive Director Ashutosh Khajuria.

In an interview with CNBC-TV18, Khajuria said the yield on the benchmark 10-year, currently hovering around 7.40 percent, may move lower by 10-12 bps, but not more, should the RBI cut by 50 bps.

"A 50 bps cut would indicate that RBI is done with rate cuts in the near term," he said.

The 10-year has fallen from a peak of about 7.9 percent seen earlier this year.

Khajuria also said that any repo rate cut was unlikely to be transmitted into lending rate cuts by banks quickly as their costs of funds were linked to deposits rather than market rates.

He added that while it was unlikely, the Reserve Bank should think of cutting the cash reserve ratio (CRR) as the banking system to witness an outflow of about USD 30 billion later this year through the FCNR route.

The FCNR was a window that RBI chief Raghuram Rajan had opened soon after taking charge in September 2013 in order to attract foreign deposits to stem the rupee's fall. The minimum lock-in for FCNR deposits was kept at three years.

Watch video for the full interview.

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First Published on Apr 5, 2016 09:46 am
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