MUMBAI: Indian government bond yields were largely unchanged at start of the session on Friday, as investors awaited the Reserve Bank of India’s policy decision and its guidance on inflation management and liquidity.
The 10-year benchmark 7.18% 2033 bond yield was at 7.2197% as of 9:45 a.m. IST, after ending at 7.2140% in the previous session. India’s central bank is seen holding the key interest rate steady at 6.50% on Friday despite the recent rise in inflation.
“There is some talk in the market that the RBI may choose to keep liquidity conditions on the tighter side,” a trader with a primary dealership said.
“They may not go for any blunt measure, which is leading to flattish pre-policy trades.”
The RBI is likely to maintain its full-year growth and inflation projections at 6.5% on year and 5.4% on year, respectively, according to DBS.
The central bank had in August asked banks to maintain an incremental cash reserve ratio (I-CRR) of 10% on the increase in some deposits.
Since then, banking system liquidity - the quantity of money with banks - has narrowed. While the I-CRR has been eased out in phases, its implementation has pushed effective rates higher.
“As the final leg of the I-CRR hike is unwound, this is likely to be accompanied by one-off absorption steps,” Radhika Rao, senior economist at DBS said.
Indian bond yields may rise amid relentless spike in US peers
“The preference might be to tap temporary pressures like the short-term sell/buy FX swaps or variable auctions, rather than a more durable CRR tweak.”
Meanwhile, US Treasury yields steadied following a sharp spike over the last few days amid bets of higher-for-longer interest rates. Traders awaited US non-farm payroll data due Friday.
The 10-year US yield was around 4.70%, off an over 16-year high of 4.88% hit on Wednesday.
The benchmark Brent crude oil contract was trading below the $85-per-barrel mark.
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