India bonds fall as doubts over rate cut grows ahead of RBI meet

MUMBAI: Indian government bonds fell on Monday, with traders paring positions ahead of the central bank’s policy decision this week, after a stronger-than-expected growth data clouded the outlook for rate cuts.

The benchmark 10-year yield was at 6.5594% as of 10:45 a.m. IST.

It ended at 6.5463% on Friday. Bond yields move inversely to prices.

Data on Friday showed India’s economy grew at its fastest pace in 18 months in the July-September period, spurring many market participants to scale back their rate-cut bets.

India’s economy expanded at 8.2% in the quarter, up from 7.8% in April-June, prompting analysts to raise their full-year growth estimates to above 7%.

The market is still betting on further rate cuts by the Reserve Bank of India, but the timing of the next move, whether it comes in December, is now up for debate, traders said.

“We would assign a higher probability of a “pause” in December along with this kind of a guidance on maintaining adequate liquidity through open market operations (OMOs),” economists at Citi wrote in a note.

The RBI’s rate-setting panel will meet on December 3-5. It has already slashed rates by 100 basis points between January and June but has kept policy on hold since then.

India’s robust September-quarter growth numbers are now raising questions about the need for lower interest rates, even as record-low inflation gives the RBI ample room to resume easing later this week, analysts said.

The central bank is also set to conduct a four-day variable rate reverse repo for 750 billion rupees ($8.38 billion) during the day.