Government bonds edged up on Monday on expectation that the RBI will not raise rates when it announces its quarterly monetary policy review on Tuesday, but gains were capped on speculation that it will raise the spectre of inflation.
Analysts expect RBI to lower the mandatory Statutory Liquidity Ratio (SLR) the minimum amount commercial banks require to maintain in the form of gold or government approved securities before providing credit to customers.
Lowering of SLR by itself may not lead to an increase in lending in the economy, since banks are already surplus in this area," said Vishweshwara M, assistant general manager, treasury at Karnataka Bank. The existing benchmark 10-year bond yield, the most traded paper, ended 2 bps lower at 8.73%. The new 10-year paper yield, the second most- traded security, ended 2 bps lower at 8.5%.