MUMBAI: India’s government bonds ended higher for a second consecutive session on Tuesday after dovish comments from the central bank chief a day earlier renewed expectations of a rate cut next month.
The benchmark 10-year yield ended at 6.4984%, lowest level since November 12, after ending 5 basis points lower on Monday at 6.5194%. Bond yields move inversely to prices.
Reserve Bank of India Governor Sanjay Malhotra, in an interview with a local news channel, said that there is scope to reduce policy rates further.
“At the last MPC (monetary policy committee) meeting in October, it was communicated clearly there is room to cut policy rates…Since then, the macroeconomic data has not indicated that the room to lower rates has decreased,” Malhotra said.
India’s July-September growth data is due on Friday. The economy grew 7.3% according to a Reuters poll, after expanding 7.8% in April-June.
This would be followed by the RBI’s monetary policy decision on December 5, with market participants watching closely if the central bank opts for a rate cut after 100 bps of reduction in the first half of 2025.
“The December RBI policy will be set against a backdrop of resilient growth and ultra-low inflation, making it a close call between a cut and a pause,” said Gaura Sen Gupta, an economist with IDFC First Bank.
Sen Gupta expects the central bank to keep rates unchanged, saying the space for easing is limited and should be utilised when downside risks to growth materialise.
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India’s overnight index swap (OIS) rates also ended lower for second day as Malhotra’s dovish tone pushed the market further towards a receive bias.
The one-year OIS rate ended at 5.4250%, while the two-year ended at 5.42%. The five-year closed at 5.71%. Swap rate across the curve have declined by 6-7 bps in two days.
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