MUMBAI: Indian government bond yields dipped only slightly on Thursday, as the Reserve Bank of India’s (RBI) monetary policy decision continues to be a major focus area for the market, which is currently not reacting much to declining oil prices.
The 10-year benchmark bond yield was at 7.2462% as of 10:00 a.m. IST, after ending the previous session at 7.2528%.
“Bond yields will not move much, until the central bank policy guidance is out, and if there is dovishness, then we would see a combined impact of oil as well as continuously falling US yields,” a trader with a private bank said.
Oil prices plunged on Wednesday, as worries about global fuel demand mounted after US data showed a larger-than-expected rise in gasoline stocks, while concerns over China’s economic health and future fuel demand also weighed.
Falling oil prices bode well for the inflation outlook for import-dependent nations like India.
India’s November retail inflation data is due next week, with the reading expected to rise above the central bank’s upper tolerance ceiling of 6%, according to Barclays.
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The RBI’s monetary policy decision is due on Friday, in which the central bank is expected to hold rates at 6.50% for a fifth consecutive meeting, according to a Reuters poll.
Traders anticipate a hawkish undertone to the guidance, with the focus on inflation and liquidity management.
US yields remained subdued, with the 10-year yield below 4.15% levels, as weaker economic data and softer inflation reading have led to bets that the Federal Reserve may start cutting rates in the first half of 2024.
The odds for a rate cut in March stand close to 61%, while that for May is close to 87%.
However, India’s overnight index swap market is signalling that the country’s central bank will not rush to cut interest rates even if the Fed begins cutting rates early next year.
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