MUMBAI: Indian government bond yields started the week a tad lower after the minutes of the central bank’s latest meeting indicated that an interest rate cut in February was a possibility, while US Treasury yields cooled marginally.
The 10-year benchmark bond yield was at 6.7774% as of 9:45 a.m. IST on Monday, compared with the previous close of 6.7891%.
“Since there is no new negative trigger and the benchmark bond yield is at attractive level, we are seeing some buying interest at the start of the week,” a trader with a state-run bank said.
“Market is not eyeing a break of 6.80%, and in that scenario this is a good level to enter.”
On Friday, the minutes of the Reserve Bank of India’s (RBI) December monetary policy meeting showed members of the rate-setting panel said that high prices are the cause for a demand slowdown in India, and aligning inflation to the central bank’s 4% target is key to ensuring sustained economic growth.
India bond yields rise in lead up to domestic inflation data
The RBI kept its key interest rate unchanged earlier this month, but cut banks’ cash reserve ratio for the first time in over four years, effectively easing monetary conditions.
The minutes suggest that the role of monetary policy in bringing down supply shock driven inflation is limited and keeping rates high has an unjustifiable impact on growth, Barclays said in a note.
“As the inflation-growth balance restores gradually in coming months, we see a 25bp (basis point) cut in February,” Barclays economist Aastha Gudwani said. Meanwhile, US Treasury yields eased marginally after data showed the country’s inflation cooled moderately last month.
The 10-year yield fell about 5 bps on Friday, but was above 4.50% in Asia hours.
The Federal Reserve tracks the gauge as it aims to keep inflation at its 2% target.
The Fed, which has cut rates by 100 bps since September, expects only 50 bps of easing in 2025.
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