BANKING/FINANCE: Bonds stable as traders take cue from RBI to expand credit.

from BUSINESS LINE, October 27, 2008 Bangalore, Oct. 26 - Bonds remained stable after traders took signals from the Reserve Bank of India's (RBI) peak season policy to expand credit.

Traders said that the credit policy was in line with market expectations. Few had expected any significant reductions in the cash reserve ratio (CRR) after a drop of 250 basis points over a period of two weeks. Besides, the RBI had, at the beginning of week, pre-empted the policy and cut the repo rate 100 basis points to 8 per cent. This clearly was a signal that addressing the liquidity situation was top priority for the central bank.

That the RBI's measures were beginning to impact was evident from the liquidity adjustment facility (LAF) auctions. The recourse was mostly to the reverse repurchase window. Reverse repurchase implies sale of securities by the RBI to banks and primary dealers for mopping up excess liquidity. At the two weekend LAF auctions, net recourse to the reverse repo window was Rs 19,605 crore.

The central bank's measures …