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Indian bonds volatile after EPF rate remark

BOMBAY: Indian government bonds were volatile in Monday afternoon trade after the labour minister ruled out any cut in the interest rates on the Employees Provident Fund (EPF).

Bonds eased by 40-50 paise (0.40-50 paise) soon after the Press Trust of India (PTI) quoted labour minister Satyanarayan Jatiya as saying that there will be no reduction in the interest rates on EPF, currently 12 percent.

Prices however recovered in later deals and bonds were bid 5-10 paise higher.

Call money rates edged up in afternoon trade to 8.00-8.15 percent in the absence of traditional lenders, dealers said.

Call rates were quoted in opening deals at 8.00-8.10 percent.

"The situation is very fluid and the market is looking for a direction. If the government does not cut EPF rates, it is a major road block in lowering interest rates," a primary dealer said.

The PTI quoted Jatiya as saying the government will be able to meet the higher interest burden despite the increased inflows into these small savings and the transfer of such funds to state governments.

"The market was expecting the EPF rates to be cut. The minister's statement comes as a surprise," an analyst said.

The government had cut rates on deposits in the Public Provident Fund (PPF), a voluntary savings scheme, and on post office deposits by 100 basis points from January 15.

Other lending and deposit rates in the financial sector stay high on account of the high returns the governmment offers on its small savings.

The 11.83 percent 2014 was quoted at 106.40/45 rupees after falling to 106.20 rupees on the labour minister's statement.

In morning trade this bond was dealt at 106.75 rupees.-Reuters