RTRS: Indian bond yields rise; RBI seen keeping rates on hold
By Subhadip Sircar
MUMBAI, July 30 (Reuters) - India federal bond yields rose
to a near-three week high on Monday as investors cut positions a
day before the central bank is widely expected to keep interest
rates on hold.
Those expectations are likely to be further supported after
the Reserve Bank of India warned inflation continues to pose a
significant risk, giving it little room to maneuver. The
comments came after the market close as part of its quarterly
report.
Although global investors are hoping for monetary stimulus
from the Federal Reserve and the European Central Bank, both of
which decide policy this week, the RBI faces a different
challenge: how to ward off inflationary pressures amidst slowing
growth.
Still, not all investors see no action as a given. The
one-month overnight indexed swap rate has
remained at 7.85 percent, below the repo rate of 8.00 percent,
indicating some bets for a surprise rate cut.
"If there is a status quo, I do not expect much movement in
yields. We will be closely watching the tenor of the policy,"
said Killol Pandya, head of fixed income at Daiwa Mutual Fund,
referring to what's contained in the RBI statement.
By contrast, Pandya said a surprise rate cut could send the
10-year yield down by 5-6 basis points.
The benchmark 10-year bond yield closed at
8.15 percent, up 3 basis points from its previous close and its
highest since July 11.
It moved in a tight band of 8.11 percent to 8.15 percent.
Volumes were low at 76.15 billion rupees.
A rate cut is still seen as unlikely. A Reuters poll showed
19 out of 20 analysts expect no changes in interest rates on
Tuesday.
A big factor that may further hold sway over the central
bank decision is the growing prospects of a drought, as India's
monsoon rains remain well below average, potentially fuelling
food inflation.
The benchmark 5-year OIS rate closed up 2
bps at 7.00 percent while the 1-year rate
closed up 1 bp at 7.64 percent.
