MUMBAI: Indian government bonds slipped on Thursday, snapping a three-day run of gains, as traders booked profits after dovish minutes from the central bank’s latest monetary policy meeting, which aligned with market expectations.
The yield on the benchmark 10-year note ended at 6.5000%, after closing at 6.4799% on Wednesday. Bond yields move inversely to prices.
Earlier this month, the Reserve Bank of India held interest rates, although two members of the rate-setting panel favoured a change in stance to “accommodative” from “neutral”.
Panel members flagged room for further rate cuts as India’s inflation remains subdued, minutes from the October meeting showed on Wednesday.
“The commentary confirms that members have made up their mind about next round of 25 bps cut in December… However, we got no further clarity about overall scope of easing, and whether members are inclined to additional rate cuts post December,” ICICI Securities Primary Dealership said in a note.
The bond house added that the RBI could target zero real policy rates, if growth concerns persist, but it should otherwise stop cutting at the 5.25% rate, which is already quite stimulative.
India’s retail inflation dropped to an eight-year low of 1.54% in September, and HDFC Bank anticipates inflation falling to its lowest ever level of 0.5% in October, bolstering calls for a rate cut in December.
While most market participants expect only 25 bps of rate cuts, Nomura, MUFG and Capital Economics expect the central bank to lower rates by 25 bps in February as well.
RATES
India’s overnight index swaps (OIS) saw paying interest across the curve, led by the longer end as foreign banks added positions.
The one-year OIS rate ended at 5.4325%, while the two-year rate closed at 5.3775%. The five-year rate settled at 5.6275%.
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