MUMBAI: Indian government bonds are expected trade largely unchanged in early Thursday deals, after the Federal Reserve decision came in line with expectation, while focus remains on the local central bank’s first debt purchase auction under its liquidity package.
The 10-year bond yield is likely to move between 6.67% and 6.70% till the auction, a trader with a private bank said, compared with the previous close of 6.6860%.
“The Fed policy was a non-event, and the main focus area would be local factors for next few days, starting from open market purchase of bonds from the RBI, especially the treatment of benchmark bond at the auction,” the trader said.
The Reserve Bank of India aims to buy bonds worth up to 200 billion rupees ($2.31 billion) in its first such operation in over three years, and this includes the benchmark note.
This would mark the start of the central bank’s durable liquidity infusion package, through which the central bank aims to inject around 1.50 trillion rupees into the banking system over next three weeks.
Thursday’s OMO purchase would be followed by a dollar/rupee buy/sell swap worth $5 billion on Friday and a 56-day variable rate repo on Feb. 7.
India bond yields rise in lead up to domestic inflation data
The RBI would then conduct two more debt purchases worth 200 billion rupees each on Feb. 13 and 20.
Analysts said these measures could be a precursor to a rate cut. Meanwhile, India’s federal budget is due on Saturday, followed by the RBI’s monetary policy decision on Feb. 7.
Economists in a Reuters poll expected New Delhi to stick to fiscal deficit target of 4.5% of gross domestic product, with gross borrowing forecast at 14.28 trillion rupees.
Meanwhile, the Fed held interest rates steady on Wednesday and Chair Jerome Powell said there would be no rush to cut them again until inflation and jobs data made it appropriate.
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