MUMBAI: Indian government bond yields ended largely unchanged on Friday after the debt supply, but edged up marginally for the week, while the focus shifts to the central bank’s policy decision next week.
The yield on the benchmark 10-year bond ended at 6.3680%, after closing at 6.3735% on Thursday. It rose 2 basis points this week after climbing 3 bps last week.
Bond yields were flat for the day after New Delhi sold 320 billion rupees ($3.66 billion) of bonds, with the auction marginally slightly weaker-than-expected demand.
Traders remained cautious ahead of the Reserve Bank of India’s monetary policy decision on Wednesday, with some market participants expecting yet another rate cut.
This contrasts a Reuters poll of economists, with the majority expecting the RBI to hold interest rates steady this time.
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“Weaker-than-expected inflation and sluggish growth argue for another rate cut. However, the RBI is unlikely to act at the August meeting, as another cut now could deepen market confusion. We now expect the RBI to cut the policy rate by 25 bps at its October meeting,” BNP Paribas Global Markets said.
A drop in June retail inflation to a more than six-year low had boosted bets of a rate cut in August.
However, investor expectations faded after RBI Governor Sanjay Malhotra said the bar for further easing is now higher than it would have been if the stance was still “accommodative”.
The RBI shifted its stance to “neutral” while cutting the benchmark interest rate by 50 bps in June.
Rates
India’s overnight index swap (OIS) rates were little changed due to a lack of fresh cues.
The one-year OIS rate ended at 5.51%, while the two-year OIS rate ended at 5.47%. The liquid five-year OIS rate finished barely changed at 5.7150%.
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