MUMBAI: India's benchmark 10-year bond yield fell 4 basis points on Monday after the finance minister said high interest rates are burdening borrowers and promised the government will shortly unveil fiscal consolidation measures.
Meaningful action could improve spirits among investors disappointed after the Reserve Bank of India kept interest rates on hold last week, while sticking to its hawkish language on inflationary pressures.
The lack of monetary action comes as investors had grown sceptical about whether the government would tackle fiscal measures such as raising diesel prices or attracting foreign investment -- actions seen as needed to stave off a sovereign credit downgrade.
"Yields fell on the FM's statement that interest rates are high but unless words start translating into actions, things will go back to square one," said Debendra Dash, a fixed income dealer with Development Credit Bank.
The benchmark 10-year bond yield fell 4 basis points to 8.22 percent, after earlier falling to as low as 8.21 percent after the comments from recently-appointed finance minister Palaniappan Chidambaram.
"We are conscious that current interest rates are high. High interest rates inhibit the investor and are a burden on every class of borrowers," he told reporters.
"Sometimes it is necessary to take carefully calibrated risks in order to stimulate investment and to ease the burden on consumers. We will take appropriate steps in this regard."
The benchmark 5-year overnight indexed swap rate closed down 1 bp at 7.03 percent, though that was well off the day's high of 7.08 percent.
The 1-year rate eased 2 bps to 7.71 percent, but below the day's peak of 7.7550 percent.
The comments come ahead of the start of the monsoon parliament session on Wednesday, with investors hoping legislators would tackle the fiscal issues that have led Standard & Poor's and Fitch Ratings to cut their outlook on India's ratings to "negative" this year.
Earlier in the day, bargain-hunting from state-run banks had helped support bonds after yields touched a one-month high of 8.28 percent.
Traders said details of this week's debt sale due after market hours could also help provide direction, ahead of the factory output data on Thursday.
Total volume on the central bank's electronic trading platform was at a moderate 163.80 billion rupee.
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