MUMBAI: Indian government bonds were little changed on Friday ahead of the central bank’s monetary policy decision scheduled for 10:00 a.m. IST.
The benchmark 6.48% 2035 bond yield was at 6.6573% as of 9:30 a.m. IST.
The yield ended at 6.6472% on Thursday and has plunged 12 basis points in the last three sessions.
“If there is no action from the central bank, we do not rule out a retest of 6.75%,” a trader with a private bank said.
While the Reserve Bank of India is unlikely to deliver a repo rate cut, bond investors are rooting for positive guidance and some measures on liquidity management.
Banks are pushing the RBI to tweak some of its liquidity regulations to ease a deposit shortfall amid rising bond yields and credit growth, five treasury officials said.
Since February 2025, the RBI has delivered 125 bps of rate cuts.
The 10-year yield, however, remains near last year’s levels, and banks have struggled to pass on the cuts as deposit growth lagged credit demand.
The central bank has also infused 11.5 trillion indian rupees ($127.51 billion) into the banking system in the financial year so far through a combination of bond purchases, FX swaps and a reduction in cash reserve ratio.
However, aggressive central bank intervention in the forex market and rising currency in circulation have blunted its impact.
On Thursday, the RBI bought bonds worth 500 billion rupees at a sharply higher-than-expected price, which boosted the rally further in the secondary market, and raised hopes that the bank may come in with more measures to support market.
Rates
India’s overnight index swap rates will react to the central bank guidance on rates and liquidity management.
The one-year OIS rate ended at 5.51%, while the two-year rate ended at 5.66% on Thursday, and they were not yet traded on Friday.
The longer-duration five-year OIS rate moved lower to 6.07%.
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