MUMBAI: Indian government bond yields were little changed in early session on Friday as traders digested minutes of the Reserve Bank of India’s February meeting which showed that most members considered current interest rates as appropriate.
The benchmark 10-year yield was at 7.0723% as of 10:00 a.m. IST, following its previous close of 7.0682%.
“Minutes are slightly hawkish but are not adding any fresh concerns to the interest rate trajectory than what was said during the policy and with no supply in the next few weeks, bonds are consolidating,” a trader with a state-run bank said.
In the minutes released on Thursday, RBI Governor Shaktikanta Das said that at the current juncture, “monetary policy must remain vigilant and not assume that our job on the inflation front is over”.
The six-member Monetary Policy Committee (MPC), comprising three RBI and three external members, left the key repo rate unchanged at 6.50% for a sixth straight meeting.
The central bank has raised rates by 250 basis points since May 2022.
The RBI also reiterated its commitment to meet the 4% inflation target on a sustainable basis.
India bond yields little changed, focus on central bank minutes
India’s retail inflation eased to a three-month low of 5.10% in January, from 5.69% in December and 5.55% in November.
While inflation eased last month, it will be a slow grind back to the 4% midpoint of the RBI’s 2-6% target range and that suggests the central bank is unlikely to pivot yet.
Rate cuts will only materialise in the second half of the year, Capital Economics said. Meanwhile, US yields remained elevated, with the 10-year yield around the 4.35% mark.
Traders said a break could see a move towards 4.50%, leading to a selloff in local bonds.
Strong economic data and a higher-than-expected inflation reading in the world’s largest economy have pushed back imminent rate cuts hopes.
The odds of a Fed rate cut in May have tapered sharply to 24% from 38% last week and 84% last month, according to the CME FedWatch tool.
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