New Delhi: The Indian government bond market may witness a dip in yields on Thursday after the Reserve Bank of India's (RBI) recent policy meeting minutes led to suggestions that the forthcoming rate easing might continue. Traders expect the benchmark 10-year bond yield to be traded in the range of 6.30%-6.34%, against the previous close of 6.3294%.
This signal follows the very recent decision by the Monetary Policy Committee (MPC) that cut the repo rate by 25 basis points to 6%. The committee also decided to change the stance from "neutral" to "accommodative." On Wednesday, the minutes indicated there was a consensus among the members that inflation is likely to linger around the target level, which means the RBI has some cushion to support growth with further cuts in rates.
According to IDFC First Bank, India's real neutral rate lies between 1.4% and 1.9%, giving them some room to cut interest by 50 basis points more till the end of 2025. This is aiding the bulls in the bond market especially due to the RBI's continued support to the liquidity through open market operations. In April itself, the RBI purchased bonds worth 1 trillion rupees ($11.69 billion) and would buy another 200 billion rupees worth the following week.
Nevertheless, the traders have been wary of this due to geopolitical tensions following India downgrading diplomatic ties with Pakistan over a massacre in Kashmir.
The fundamentals would argue in favor of lower yields, if external factors could trigger some short-lived volatility in the bond market. Overall, expectations of a sustained looser monetary policy are likely to provide some support for sentiment near term for Indian bonds.
[Source Credit: Business Recorder]
