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Indian bond yields end off 7-mth lows

Reuters - Saturday, October 11

* Cash reserve ratio cut knocks yields to 7-month lows

* Erase some gains as traders lock in profits

* CRR cut to add 600 billion rupees to system

By Anurag Joshi

MUMBAI, Oct 10 - Indian federal bond yields fell to seven-month lows on Friday after the central bank took aggressive steps to pump cash into the banking system, but erased some of the gains as traders decided to realise some profits.

The 10-year bond yield <IN082418G=CC> ended at 7.79 percent, off an intraday trough of 7.64 percent, its lowest since March 18, 2008.It had ended at 7.98 percent on Wednesday. Volume was a heavy 96 billion rupees .

"Volumes were low at 7.64 percent. Selling picked up momentum at 7.7 percent," a trader with a foreign bank said.

In a surprise move during market hours, the central bank said it was now cutting its cash reserve ratio by 1.5 percentage points from Saturday instead of a previously announced 0.5 percentage points, saying it would free up around 600 billion rupees. [ID:nSP381289].

The central bank also cancelled a $2 billion federal bond auction scheduled for Friday, citing liquidity conditions.

Overnight call money rates <INROND=> touched a 19-month high of 23 percent in early trade. The ended at 15.5/16.5 percent, still well above the central bank's lending rate of 9 percent.

The central bank injected a record 920 billion rupees via its repo window into the system on Friday to shore up liquidity.

"I see call money easing to 10-12 percent on Monday," Anoop Verma, associate vice president at Development Credit Bank said.

Traders said a slump in factory output growth to its slowest in a decade raised hopes among a few traders that the central bank would cut the repo rate, at which it injects funds into the system, to improve investment demand in the economy. See [ID:nDEL350325]

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