MUMBAI: Indian government bond yields rose in early trade on Monday as investors weighed the central bank’s surprise shift last week to a neutral policy stance, following a larger-than-expected rate cut.
The benchmark 10-year yield was at 6.2591% as of 10:00 a.m. IST, up from Friday’s close of 6.2373%, while the five-year 6.75% 2029 bond was at 5.8344%, compared with 5.8150% previously.
“For the day, we expect some caution to prevail, but if the upside is capped, then we can see some recovery in the coming days,” a trader at a private bank said.
The Reserve Bank of India (RBI) delivered a larger-than-expected 50-basis point (bp) rate cut on Friday, its steepest in five years, but changed its policy stance to “neutral” from “accommodative”, stating that it may have limited space for further easing.
RBI Governor Sanjay Malhotra said, after having cut rate by 100 bps, under the present circumstances, monetary policy is now left with very limited space to support growth.
Indian bond yields may dip as RBI surprises with another debt purchase
The central bank also announced a cut in banks’ cash reserve ratio by 100 bps to 3%, adding to already surplus liquidity. J.P. Morgan Chase now expects 5.50% to be the terminal repo rate, against its earlier prediction of 5.00%.
The RBI may keep rates on hold until at least the end of this fiscal year, a snap Reuters poll of economists found after Friday’s decision.
Still, Nomura is anticipating the RBI to cut rates by 25 bps each in October and December as growth and inflation are expected to undershoot targets.
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