MUMBAI: Indian government bond yields dipped on Monday, with longer maturities falling further, as expectations of another central bank rate cut grew among some market participants.
The yield on the benchmark 10-year bond was at 6.3006%, compared with Friday’s close at 6.3058%. The yield on 15-year 6.68% 2040 bond yield was at 6.6126% after ending at 6.6211% last week.
The Reserve Bank of India’s monetary policy decision is due on August 6. The central bank slashed its key interest rate by 50 basis points last month, while changing its stance to “neutral” from “accommodative”, which fuelled speculation that the rate-cut cycle may already be over.
However a plunge in India’s retail inflation rate to 2.10% in June from 2.82% the previous month, the slowest pace in more than six years, has led to increased talk of an interest rate cut next month.
“Downward revision in inflation opens up room for further easing when growth is showing somewhat downside bias.” Analysts at ICICI Bank said in a note, “August would be appropriate time for the same (25 bps rate cut), given the muted inflation scenario.”
India bonds advance as traders build positions for another rate cut
With headline inflation expected to pick-up in January-March and the next financial year, it would be difficult for the RBI to cut repo rate later in the year, economists from the private lender said.
The bank expects retail inflation to average 2.9% this year, lower than RBI’s 3.7% prediction.
Rates
India’s overnight index swap rates witnessed receiving interest as clamour for a rate cut rose, traders said.
The one-year OIS rate was at 5.4875% and the two-year OIS rate was at 5.4650%. The liquid five-year OIS was at 5.6875%.