MUMBAI: Indian government bond market participants await the central bank’s guidance on liquidity as well as inflation management at the first monetary policy decision of this financial year on Friday.
The yield on the benchmark 10-year was at 7.1069% as of 9:45 a.m. IST, after closing at 7.0934% on Thursday.
The Reserve Bank of India’s monetary policy decision is due at 10:00 a.m. IST, with no change in interest rates expected, although some market participants are eyeing the possibility of a change in stance.
“Looking at the US rates and the recent spike in oil prices, we would be surprised if there is any major dovish comment from the central bank officials today and hence, the benchmark has stayed glued to the 7.10% levels since the start of this week,” a trader with a private bank said.
Strong economic growth and moderating inflation give the RBI room to keep rates on hold likely until July, economists have said.
Traders will also expect the central bank’s stand on reverting to the 14-day variable rate reverse repo, after a hiatus of four months, as the main liquidity operation.
Meanwhile, the recent jump in oil prices is also keeping investors cautious, as elevated commodity prices could have a direct impact on local retail inflation.
At the previous policy meeting, RBI Governor Shaktikanta Das had stressed the central bank may consider rate cuts only once inflation eases towards its 4% target on a sustainable basis.
Relentless spike in US yields turns India bond traders more cautious
Traders also await the start of the government’s borrowing for this financial year.
New Delhi will raise 380 billion rupees ($4.55 billion) later in the day in multiple price-based auctions, which the RBI reverted to after a gap of three years.
This auction includes 200 billion rupees of a new 10-year bond that will soon replace the existing benchmark, although it is not expected to command any significant premium to the current paper.
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