RBI Governor Shaktikanta Das
Indian government bond yields are expected to open flat 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 10-year benchmark is likely to fluctuate between 7.08 percent and 7.11 percent until the policy decision at 10 am IST, a trader at a private bank said.
The interest rate closed at 7.0934 percent on Thursday.
“For now, the market will ignore all other factors and focus solely on the tone that Reserve Bank of India Governor Shaktikanta Das is taking on monetary policy. We should see sideways moves in the first hour,” he said the trader.
The market expects no interest rate change for the time being, as strong economic growth and moderating inflation mean the central bank will have room to leave interest rates unchanged probably until July, economists say.
At the previous meeting, Das had emphasized that they could consider rate cuts only once retail inflation comes down towards the RBI’s 4 per cent target on a sustainable basis.
While commentary on liquidity and inflation management will be the main triggers, some market participants are not ruling out the remote possibility of a change of stance to ‘neutral’.
“We believe the change in policy stance would allow the RBI to suppress the shorter end of the yield curve and align it with the lending plan, which saw a significant shift in supply at the shorter end, a step in towards normalcy,” Siddharth V. Kothari, economist at Sunidhi Securities & Finance, said.
Traders also remain concerned as the Brent crude oil contract hit its highest level in more than five months, which could impact local retail inflation.
Traders are also waiting for fresh supply as New Delhi looks to raise 38,000 crore rupees ($4.55 billion) first for this fiscal year and the RBI returns to multiple price-based auctions. This auction includes Rs 20,000 crore of a new 10-year bond.
First print: April 5, 2024 | 9:23 am IST