Indian Bond Yields Experience Uptick After RBI Policy Shift

MUMBAI: Indian government bond yields saw an increase in early trading on Monday. This movement occurred as investors considered the Reserve Bank of India’s (RBI) unexpected shift to a neutral policy position the previous week, which followed a larger-than-anticipated reduction in interest rates.

The yield on the benchmark 10-year bond reached 6.2591% as of 10:00 a.m. IST, climbing from Friday’s closing figure of 6.2373%. Simultaneously, the five-year 6.75% bond maturing in 2029 was observed at 5.8344%, in comparison to its previous rate of 5.8150%.

A trader from a private bank commented, “We anticipate a degree of prudence to dominate the market today. However, should the upward potential be limited, we might observe some recovery in the near future.”

The RBI implemented a substantial 50-basis point (bp) rate cut on Friday, marking its most aggressive reduction in five years. Concurrently, the central bank adjusted its policy outlook from ‘accommodative’ to ‘neutral’, suggesting limited scope for further easing.

RBI Governor Sanjay Malhotra stated that after reducing the rate by 100 bps, the existing circumstances leave monetary policy with very little room to further bolster economic growth.

The central bank also declared a 100 bps decrease in banks’ cash reserve ratio, bringing it down to 3%, thereby augmenting the already abundant liquidity in the market. J.P. Morgan Chase has revised its projection for the terminal repo rate to 5.50%, up from its earlier estimate of 5.00%.

A recent poll of economists conducted by Reuters indicated that the RBI might maintain stable rates until at least the conclusion of the current fiscal year, following the decision made on Friday.

Despite this, Nomura projects that the RBI will implement rate cuts of 25 bps in both October and December, based on expectations that growth and inflation will fall short of established targets.