MUMBAI: Indian government bond yields are expected to decline in early deals on Thursday, after the central bank surprised markets by announcing another large liquidity infusion through debt purchases and FX swaps.
The benchmark 10-year yield is likely to move between 6.65% and 6.70%, a trader with a private bank said, compared with its previous close of 6.7087%.
“The magnitude of the liquidity infusion proves that the Reserve Bank of India is dead serious about transmission of lower rates and this also further cements the chance of one more rate cut in April,” the trader said.
The RBI on Wednesday said it will infuse more than $21 billion in rupee liquidity into the banking system in a bid to ease lending conditions and boost economic growth.
As part of the measures, the RBI will conduct open market operations worth 500 billion rupees ($5.8 billion) each on March 12 and March 18.
This will be followed by a three-year dollar-rupee buy-sell swap worth $10 billion on March 24.
The central bank has already infused more than 4.5 trillion rupees into the banking system since the middle of January, including through bond purchases, FX swaps and early April-maturity repo auctions.
India bond yields seen little changed as traders search for fresh triggers
Dovish RBI policy minutes, downside risk to growth from global trade wars, likely below-4% February retail inflation, frontloaded macroprudential easing and liquidity infusion support the case that the RBI will cut rate by 25 basis points each in April and June, Citi said in a note.
The central bank cut interest rates by 25 basis points in February.
Comfortable liquidity conditions help banks pass on policy rate cuts and boost economic growth.
American Dollar Exchange Rate