The 10-year G-Sec yield was very volatile for the month of April 2012. It was mainly due to the rate cut implemented by the Reserve Bank of India (RBI) in the month. It started rising from 8.57% level on April 01 2012 and touched 8.70% on April 09 2012. There was a policy rate cut on April 17 2012 due to which the yields on 10-year G-Sec came down to 8.44% on April 18 2012. This was the lowest yield, which was recorded in the month and from then it again went up to 8.71% due to the worries on borrowing programme for the first half of the financial year. By the end of the month, it closed at 8.71% recording an increase of 14 basis point on a month-on-month basis.
The inflation for the month of March 2012 came down to 6.89% on a year-on-year basis as compared to 6.95% for the previous month of February 2012. After cutting the CRR rate in January and March 2012, the Reserve Bank of India (RBI) surprisingly reduced Repo Rate by 50 basis points, whereas it kept CRR unchanged in its Annual Monetary Policy Review meeting.
The unexpected 50 bps rate cut by RBI reflected the central bank’s concern over the lower growth trend and as well as possible shift of focus from inflation to economic growth. However, it indicated that further rate cut will not be forthcoming due to upside risks to inflation.
We would like to continue advising our investors to invest in Short-Term Debt Funds as they are expected to give higher returns as compared to other categories.