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After RBI Governor Raghuram Rajan, it was the turn of the incoming US Federal Reserve Governor Janet Yellen to talk up the market.
Shrugging off inflation concerns, the benchmark Sensex on Thursday shot up by 205 points, its first rally in eight days, as overseas stocks rose on indications the US Fed will continue its stimulus programme. The S&P BSE Sensex opened on a strong note and touched a high of 20,568.99 before closing at 20,399.42, a rise of 205.02 points or 1.02 per cent. The index had plunged 1,044.96 points or 4.92 per cent in the last seven sessions. On Thursday, Yellen had signalled the bank’s massive stimulus policy would be needed for some time.
In remarks prepared for her nomination hearing before a US Senate Banking Committee, Yellen said high unemployment, weak inflation and an economy running below potential meant the Fed had “more work to do”. “I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy,” she said.
Later, answering questions before the US Senate Banking Committee, Yellen made plain she would press forward with the Fed’s ultra-easy monetary policy until officials were confident a durable economic recovery was in place. The Fed has held interest rates near zero since 2008 and has quadrupled its balance sheet to $3.8 trillion through 3 massive rounds of bond purchases.
Dipen Shah, head of Private Client Group Research, Kotak Securities, said: “The market sentiment was better following the comments made by the Rajan. Expectations that Yellen will also be more dovish in her approach buoyed sentiments. Markets have been concerned about an early Fed taper. This may keep sentiments positive in short term.”
Meanwhile, the benchmark bonds prices fell and yields rose on Thursday after data showing wholesale inflation rising to an eight-month high raised the prospect of a fresh rate hike despite Rajan’s soothing words earlier. The fears led to a so-called devolvement in the sale of 2020 bonds at the weekly auction. The RBI devolved Rs 461 crore of the total of Rs 4,000 crore of 8.12 per cent 2020 bonds available for sale at the weekly auction.
The benchmark 10-year bond yield closed at 9.02 per cent, 10 basis points higher than last close. Yields rose 3 bps for the week.