India bonds to see steady opening, all directions possible post policy

MUMBAI: Indian government bonds are expected to open largely unchanged in early deals on Friday, as the major focus is on the central bank’s monetary policy decision and guidance, followed by a debt auction and economic growth data.

The yield on the benchmark 6.48% 2035 note may trade in the 6.97% to 7.01% range till the policy decision at 10:00 a.m. IST, a private bank trader said.

It closed Thursday trade at 6.9931%.

Bond prices move inversely to yields. “This would be a make or break policy, and we are having such a tough call after long time, where literally multiple options are on the table,” the trader said.

“We are in for one of the most volatile days in recent past.”

Nearly 80% of economists in Reuters’ poll expect the policy repo rate to remain unchanged.

A growing minority thoughexpects a 25 basis point rate hike, including Standard Chartered, Capital Economics, ANZ and MUFG.

The Reserve Bank of India faces one of its most challenging interest rate calls in recent history, as the Middle East energy shock, a slumping currency and a weak monsoon risk crimping growth along with stoking inflation.

The rupee has tumbled to record lows since the Iran war broke out at the end of February, as a sustained spike in crude oil prices delivered a severe blow to Asia’s third-largest economy.

A hike in the policy repo rate from the current 5.25% could support the currency, while also riling the rates market, which sees scope for the central bank to stand pat, as inflation remains below target.

The RBI is expected to hold rates, but a weakening rupee could compel earlier action than markets currently anticipate,

 according to Avnish Jain, CIO for fixed income at Canara Robeco Mutual Fund.

Additionally, a super El Niño prediction adds further uncertainty to the food price outlook, he said. Meanwhile, the benchmark Brent crude contract stayed around $96 per barrel in early Asian trading hours.