India bonds inch lower before pivotal RBI decision
Amid the backdrop of escalating US Treasury yields and surging oil prices, Indian government bond traders are revamping their strategies. The Reserve Bank of India is poised to announce a key policy decision that may affect liquidity and inflation...
By Reuters |
IANS
Indian government bond traders pared positions early Wednesday as rising US Treasury yields and oil prices added pressure ahead of a pivotal Reserve Bank of India policy decision that will mould expectations for liquidity, inflation and the rate path.
The benchmark 6.94% 2036 bond yield gained 2 basis points to 7.2110% ahead of the 10:00 a.m. policy decision.
Investors are focused on the accompanying forward guidance on the depth of the tightening cycle ahead of what's expected to be the RBI's first rate increase since February 2023.
Two-thirds of economists polled by Reuters forecast a 25-basis-point hike as the base case. Some also anticipated further liquidity tightening through additional debt sales or a modest increase in banks' cash reserve ratio.
Rate-hike bets have firmed since India's inflation accelerated in August, while the global backdrop has turned more challenging. The US 10-year Treasury yield traded above 7.30% on Wednesday and oil remained above $101.59 a barrel, intensifying pressure on net energy importer India's inflation, government finances and currency.
Rate increases by major central banks, including the Federal Reserve and the Bank of Japan, as well as several Asian peers, have further strengthened the case for the RBI to tighten, traders said.
"It is time to react to the reality that inflation is headed higher and monetary policy acts with a lag," said Siddharth Choudhary, head of fixed income at Bajaj AMC.
"We must start raising rates now, only then will we see the effects later on."
The swap market has also been highlighting the outside possibilityof a larger 50-bps rate hike, while a 25 basis point increase is fully priced in.
The one-year OIS rate was flat at 6.2350%, the two-year rate was up 1.25 bps at 6.4275%, and the liquid five-year rate rose 2 bps to 6.69%.
The benchmark 6.94% 2036 bond yield gained 2 basis points to 7.2110% ahead of the 10:00 a.m. policy decision.
Investors are focused on the accompanying forward guidance on the depth of the tightening cycle ahead of what's expected to be the RBI's first rate increase since February 2023.
Two-thirds of economists polled by Reuters forecast a 25-basis-point hike as the base case. Some also anticipated further liquidity tightening through additional debt sales or a modest increase in banks' cash reserve ratio.
Rate-hike bets have firmed since India's inflation accelerated in August, while the global backdrop has turned more challenging. The US 10-year Treasury yield traded above 7.30% on Wednesday and oil remained above $101.59 a barrel, intensifying pressure on net energy importer India's inflation, government finances and currency.
Rate increases by major central banks, including the Federal Reserve and the Bank of Japan, as well as several Asian peers, have further strengthened the case for the RBI to tighten, traders said.
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"It is time to react to the reality that inflation is headed higher and monetary policy acts with a lag," said Siddharth Choudhary, head of fixed income at Bajaj AMC.
"We must start raising rates now, only then will we see the effects later on."
The swap market has also been highlighting the outside possibilityof a larger 50-bps rate hike, while a 25 basis point increase is fully priced in.
Rates
India's overnight indexed swap rates traded mixed in early deals as sentiment remains cautious till the policy decision.ADVERTISEMENT
The one-year OIS rate was flat at 6.2350%, the two-year rate was up 1.25 bps at 6.4275%, and the liquid five-year rate rose 2 bps to 6.69%.
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