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Indian bond yields ease, liquidity measures awaited

Reuters - Thursday, October 16

* Central bank expected to pump in more cash

* Overnight cash rates end around 10 pct

By Anurag Joshi

MUMBAI, Oct 15 - Indian federal bond yields dropped on Wednesday as traders expected the authorities to announce more measures to inject cash to shore up sentiment hit by the global financial turmoil.

The 10-year federal bond yield <IN082418G=CC> ended at 7.91 percent, off an early high of 8.04 percent, and lower than the previous close of 7.94 percent. Volume was a normal 37 billion rupees .

Finance Minister Palaniappan Chidambaram said on Wednesday the authorities would disburse immediately 250 billion rupees to banks for a farm waiver plan and the central bank would release a statement shortly. [ID:nBMA001626]

Last week, the central bank cut banks' reserve requirement by a hefty 150 basis points to 7.5 percent, releasing about 600 billion rupees into the banking system to boost cash and bolster investor confidence after the rupee <INR=IN> hit an all-time low and the main share index <.BSESN> tumbled 16 percent.

"The market will react tomorrow depending on what RBI announces today," a trader with a primary dealership said, referring to the Reserve Bank of India. Overnight cash rates <INROND=> ended at 10/10.25 percent, higher than Tuesday's close of 8.75/9.0 percent as suspected buying of rupees by the central bank in the currency market drained cash.

The partially convertible rupee <INR=IN> ended at 48.525/540 per dollar, about 1 percent weaker than 48.04/06 at close on Tuesday. The central bank is suspected to have sold dollars to lift the currency from an intraday low of 48.62.

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