Wednesday, August 1, 2012

RBI Monetary policy...

RBI’s action was no surprise to us. Infact 12 month Bond yield helped us to predict there will be no rate cut in the monetary meeting held on 31st July 2012.
The below research was first shown in our Equity Financial Waves report published on Monday morning before markets opened. For more information write to us on or visit 
Bottom Line:RBI monetary policy eyed by most of the traders to determine if there will be repo rate cut announced that can act as positive trigger for stock market…
12M Government Bond Yield:
Chart courtesy: Bloomberg
 The above chart is of 12 Month Government Bond yield. We have analyzed this yield for past years and noted that this Bond yield normally leads the government actions on repo rate. We can see that the repo rate cut by 50 bps on April 17 was indicated before itself. The bond yield fell from 8.40 levels to 8.10 level prior to the rate cut was announced. On June 18, when no rate cut was announced Bond yield was hovering around 7.90 levels. Currently as well the 12M bond yield is at 7.93 levels which indicates there will probably be no repo rate cut by RBI in the meeting scheduled on 31st July 2012.
On June 18, Nifty opened almost 40 points higher at 5174, made a high of 5190 and when no rate cut was announced market reacted sharply lower towards 5041 finally closing at 5064. There was a swing of 150 points on intraday. As per wave structure, market was in corrective mode then. Currently as well Nifty is moving up in corrective minor wave b and similar behaviour and volatility can be expected.
If the bond yields would have been around 7.5 to 7.75 levels we would have been optimistic about rate cut but the above chart is indicating otherwise.
Please note the future is probabilistic and based on the assumption that the above bond yields are tracking government actions closely. This research shall be used only as a caution sign and actions should be taken on price confirmations…


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    RBI released the report on enhancing liquidity in the government bond and interest rate derivative (IRD) market on the 13th of August 2012. I thank RBI for taking my inputs and recognizing my contribution to the report. Read full report. . .