The Reserve Bank is unlikely to cut key interest rates at this point of time following drop in bond yield. The yield on 10-year bonds was 7.50% early this week and 8% in October.

Bond prices and yield are moving in opposite direction to each other leaving no room for interest cut by apex bank. The overall situation has changed after the collapse of Wall Street investment bank Lehman Brothers Holding Inc. in mid-September.

The yield had dropped to 7.096% on 19 January 2006 as per Bloomberg data. The policy rates of reserve bank were at 6.50% as compared to 7.50% at present after it had revised interest rates amid tight liquidity conditions. The yield was 7.704% during first cut in interest rate on October 20.

Current economic condition can deter India to register 7.5-8% growth rate in the current fiscal year. The annual borrowing program of worth Rs 1.45 trillion was completed on Friday from the auction of two bonds worth Rs 9,000 crore by government. But borrowing may increase in coming times to bridge widening fiscal deficit.

Managing director of STCI Primary Dealer Ltd, Pradeep Madhav said that the borrowing target may increase by Rs 25,000-35,000 crore to provide funds for infrastructure sector. However, it does not impact bond market due to decrease in crude oil prices.