MUMBAI: Indian government bond yields are expected to remain largely unchanged in the early session on Wednesday as market participants await the Reserve Bank of India’s (RBI) monetary policy decision as well as commentary on the interest rate trajectory.
The benchmark 10-year yield could move in the 7.30%-7.34% range till the policy decision, a trader with a private bank said, after closing at 7.3102% on Tuesday.
“Rate action is already factored in prices, but the key would be the change of stance or the bias of future guidance if it tilts towards dovishness,” the trader said. The RBI’s Monetary Policy Committee is likely to raise the key interest rate by 25 basis points (bps) to 6.50%, a Reuters poll of economists showed.
More than three-quarters of economists, 40 of 52, expected the 25-bps raise, according to the poll conducted between Jan. 13-27. The remaining 12 predicted no change at the meeting.
The central bank has raised the repo rate by 225 bps since May to 6.25% to tame inflation, which has eased below the 6% upper tolerance level in November-December.
Indian bond yields little changed as traders await supply, RBI decision
Barclays expects the reading to remain below 6% for the third straight month in January.
“Bond markets are pricing in one final 25 bps rate hike going in this policy. However, we believe there is a case for the MPC to deliver a status quo policy and resist incremental policy tightening at this juncture.
This in our view will be a positive surprise for bond markets and may lead to moderate softening in yields,“ said Churchil Bhatt, executive vice president of debt investments at Kotak Life Insurance.
The local monetary policy comes after the Federal Reserve raised rates by 25 bps last week and is set to hike them by another 50 bps till June.
Traders also await heavy supply as the central government will raise 80 billion rupees ($965.48 million) through green bonds on Thursday and 300 billion rupees through debt sale on Friday.
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