India bonds rise before RBI minutes, rate cut cues may fuel more gains

Indian government bonds ended higher for a third consecutive session on Wednesday, ahead of the release of the minutes from the central bank's latest policy meeting, where a dovish tone could fuel further rise.

The yield on the benchmark 10-year note ended at 6.4799%, after closing at 6.5063% on Tuesday.

Bond yields move inversely to prices.


Bond yields are likely to remain anchored as headline retail inflation eased sharply, said Laukik Bagwe, fund manager and head of fixed income at ITI Mutual Fund.

"With the RBI maintaining a neutral stance and signalling policy flexibility if growth headwinds intensify, markets may continue to price in a mild easing bias."

India's retail inflation dropped to 1.54% in September, an eight-year low, as food prices eased, which has further turned the tide in favour of a rate cut as early as December.

Softer food prices prompted the Reserve Bank of India to trim its inflation forecast for the current financial year to 2.6% from 3.1%.

Earlier this month, the RBI maintained status quo on interest rates, while stating that lower inflation opened up policy space for supporting growth. The RBI has already reduced the key policy rate by 100 bps so far in 2025.

The minutes of the meeting will be released after market hours and will provide more cues into the RBI's policy path.

Most market participants expect an RBI rate cut in December, while Nomura, MUFG and Capital Economics forecast one more cut in February.

RATES

India's shorter-duration overnight index swap (OIS) rates were largely unchanged, while the longer-end swap declined in line with bond yields, as sentiment favours receiving.

The one-year OIS rate ended at 5.4250%, while the two-year rate closed at 5.35%. The liquid five-year rate was at 5.60%.