MUMBAI: Indian government bond yields are likely to rise in the early session on Thursday, as the Reserve Bank of India’s monetary policy committee members (MPC) continue to fret over inflation, minutes of the latest policy meeting showed.
The 10-year benchmark 7.26% 2032 bond yield is expected to trade in the 7.39%-7.45% band, a trader with a private bank said, after closing higher at 7.4249% on Wednesday.
“The minutes are slightly more hawkish than the actual policy comments, and we should see local bond yields resume their upward journey today,” the trader said.
Price pressures in India remain high and it would be premature to lower the guard on inflation, the majority of the MPC members said.
RBI Governor Shaktikanta Das said the central bank remained committed to “ensure a decisive and durable moderation in inflation towards the target of 4% over the medium term, while being mindful of growth.”
The MPC hiked the key repo rate for the sixth consecutive time to 6.50% earlier this month, and surprised markets by leaving the door open to more tightening.
The RBI will increase its main interest rate by 25 bps to 6.75% in April and then pause until the end of 2023, according to a Reuters poll of economists.
Citi expects a long pause after the April rate hike but does not foresee any rate cuts in the next financial year.
Meanwhile, the market did not react much to the minutes of the Federal Reserve’s latest meeting, which bolstered expectations that the U.S. central bank will keep rates higher for longer.
A solid majority of Fed officials agreed to reduce hikes of the benchmark overnight rate to 25 basis points (bps). But “a few” participants at the meeting outright favoured a larger 50- bps increase or said they “could have supported” it.
The Fed has raised the policy rate by 450 basis points (bps) since March 2022 and is expected to hike it by as much as 75 bps in the next few months.