Indian government bond yields are expected to open flattish on Friday as market participants await the Reserve Bank of India's first monetary policy decision of this financial year for guidance on the trajectory of interest rates. The yield on the benchmark 10-year is likely to trade in a 7.08 per cent-7.11 per cent range till the policy decision at 10:00 a.m. IST, a trader with a private bank said. The yield closed at 7.0934 per cent on Thursday. "For now, the market will ignore all other factors and will solely focus on the tone that the Reserve Bank of India Governor Shaktikanta Das adopts at the monetary policy and in the first hour, we should see sideway moves," the trader said. The market is not expecting any change in rates for now as strong economic growth and moderating inflation means the central bank will have room to keep rates on hold likely until July, economists have said. At the previous meeting, Das had stressed that they may consider rate cuts only once retail inflation eases towards the RBI's 4 per cent target on a sustainable basis.
While commentary on liquidity and inflation management will be the key triggers, some market participants are not ruling out the minute possibility of a change in stance to 'neutral'. "The change in policy stance, we believe, would enable RBI to suppress and align the shorter end of the yield curve with the borrowing plan which saw a significant shift away from the supply in the shorter end, a step towards normalcy," Siddharth V Kothari, an economist at Sunidhi Securities & Finance, said. Traders also remain worried as benchmark Brent crude contract hit its highest in over five months, which could impact local retail inflation. Traders also await fresh supply as New Delhi aims to raise 38,000 crore rupees ($4.55 billion) the first for this fiscal year and with the RBI reverting to multiple price-based auctions. This auction includes 20,000 crore rupees of a new 10-year bond.
-Business Standard 05th Apr, 2024.
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