MUMBAI: Indian government bond yields are expected to move marginally higher in early trade on Thursday, after minutes of the local central bank’s latest meeting showed members favour a cautious approach to rate cuts amid inflation worries.
The benchmark 10-year bond yield is likely to move between 6.81% and 6.86%, compared with its previous close of 6.8197%, a trader with a private bank said.
“The minutes are tilting towards hawkish side, and we can safely rule out an immediate rate action in the next policy meeting, as there is hardly any time for the data to reverse sharply,” the trader said. India cannot risk another bout of inflation and the monetary policy committee (MPC) must adopt a cautious approach to lowering interest rates, members said in the minutes.
The MPC, which consists of three Reserve Bank of India and three external members, had kept the repo rate unchanged at 6.50%, while changing policy stance to ‘neutral’.
RBI Deputy Governor Michael Patra wrote in the central bank’s minutes of the meeting that while the persistence of inflationary pressures could dissipate with a less restrictive stance of monetary policy, “reducing restraint too quickly may negate the progress made on disinflation”.
India’s retail inflation in September accelerated to its highest in nine months at 5.49%, due to higher food prices. The central bank targets inflation at 4%.
India bond yields dip on value-buying, lower state debt supply
Last week, RBI Governor Shaktikanta Das said that it would be “very premature” and risky to lower interest rates at this stage and the central bank is not “behind the curve” in terms of monetary policy.
Meanwhile, the 10-year US yield stayed above 4.20% mark as traders braced for a less aggressive Federal Reserve rate cut path and the outcome of the presidential election on Nov. 5.
Interest rate futures are anticipating the Fed to cut rates by 25 bps next month, with 89% probability and aggregate cuts of 77 bps till March.
Comments
Comments are closed for this article.