MUMBAI: Indian government bond yields were little changed on Friday, with the benchmark yield glued to the 6.68% handle, with market participants optimistic about some form of monetary policy easing from the central bank at its decision at 10 a.m. IST.
The benchmark 10-year yield was at 6.6808% as of 9.30 a.m. IST, compared with its previous close of 6.6802%.
Bond yields and overnight index swap rates have eased in the last five sessions as investors expect some form of policy easing after India’s economic growth slowed to a seven-quarter low of 5.4% in the July-September period.
“We see higher chances of a rate cut… If the RBI (Reserve Bank of India) decides to maintain the status quo in December on rates, then a CRR cut is more likely,” said Gaura Sen Gupta, chief economist at IDFC First Bank.
The sharp reduction in core liquidity due to the balance of payments outflows indicates that some form of liquidity infusion will be needed, to get overnight rates near the repo rate.
This could be either in the form of long-term variable rate repo or FX swap auctions, Sen Gupta added.
Market participants have estimated that a cut in CRR by 50 basis points could release over 1.1 trillion rupees ($13.00 billion) in the banking system and could increase demand for bonds.
While a majority of market participants expect a status quo on rates, Nomura and ANZ anticipate a 25-bp rate cut from the RBI.
India bond yields may inch up tracking US peers
The 10-year benchmark bond yield slid to a three-year low and swap rates plunged around 20 bps after growth data. The spread between the 10-year yield and the central bank’s key interest rate has also tumbled to a seven-year low, and the indicators are pointing to easing.
Domestic traders also await a fresh debt supply through the weekly auction, wherein New Delhi will raise 300 billion rupees including a new three-year bond.
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