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Macroeconomic and Monetary Developments First Quarter Review 2005-06
Domestic Developments
20. The 91-day and the 364-day Treasury Bill rates increased from 5.32 per cent and 5.66 per cent at end-March to 5.49 per cent and 5.89 per cent, respectively, by July 20, 2005. The yield on 182-day Treasury Bills increased from 5.44 per cent on April 6 to 5.67 per cent by July 13, 2005. In the secondary market for government securities, the yield on securities with 1-year residual maturity increased from 5.51 per cent at end-March 2005 to 5.85 per cent by July 22, 2005 whereas the yield on government securities with residual maturities of 10-year and 20-year increased from 6.65 per cent and 6.99 per cent to 7.16 per cent and 7.70 per cent, respectively, over the same period. It may be noted that long-term yields in the government securities market had touched relatively higher levels towards the end of April and beginning of May 2005. For example, the yields of 10-year and 20-year government securities were 7.35 per cent and 7.77 per cent, respectively. Over the period end-March to July 22, 2005, with a relatively higher increase in long-term interest rates, there was a steepening of the yield curve. While the yield spread between 1-year and 10-year government securities increased from 114 basis points to 131 basis points, it increased from 148 basis points to 185 basis points between 1-year and 20-year government securities. The yield spread between AAA-rated corporate bonds of 5 years and government securities of similar maturity, however, reduced from about 76 basis points at end-March to 30 basis points by July 22, 2005. The weighted average discount rate (WADR) on commercial paper (CP) increased from 5.84 per cent at end-March to 5.93 per cent by July 15, 2005.
21. The interest rates on deposits of over 1-year offered by the public sector banks moved from a range of 4.75-7.00 per cent in March to 5.25-6.50 per cent by June 2005. The benchmark prime lending rates (BPLRs) of public sector, private and foreign banks remained unchanged in the range of 10.25-11.25 per cent, 11.00-13.50 per cent and 10.00-14.50 per cent, respectively, between March and June 2005. The representative (median) lending rates on demand and term loans (at which maximum business is contracted) of the public sector banks moved from 9.00-12.50 per cent and 8.35-12.00 per cent, respectively, in March to 8.00-12.15 per cent and 8.15-11.90 per cent by June 2005.
22. The equity market remained buoyant with the BSE sensex crossing the 7000-mark in June 2005. It rose from 4795 at end-June 2004 to 6493 at end-March 2005 and further to 7506 by July 25, 2005.
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