MUMBAI, Aug 7 (Reuters) – Indian government bond yields are likely to extend their rise on Thursday, following the previous session’s sharp selloff, which was triggered by disappointment over the central bank’s monetary policy decision and commentary.
The yield on the benchmark 10-year bond is likely to move between 6.40% and 6.45%, a trader at a private bank said, after closing at 6.4162% on Wednesday, the highest closing since April 15.
The Reserve Bank of India held its key policy rate steady on Wednesday, as the policymakers opted for a wait-and-watch approach to see the impact of the previous rate cuts on the economy.
The RBI also kept its growth forecasts unchanged, while reducing the inflation forecast. RBI Governor Sanjay Malhotra said that while inflation is much lower than expected, it is largely due to volatile food prices and is set to rise by end of the year.
The decision came even as a rising number of market participants had hoped for a rate cut.
The market is now divided with several analysts saying the economic outlook suggests that there may be no more rate cuts.
“The policy will decide on which side of the par level of 6.33% the benchmark bond yield moves,” the trader said.
State Bank of India said the repo rate of 5.50% seems to be “a long haul” for now and the bar for a further rate cut in 2025 is now even higher.
India’s overnight index swap rates may continue to see paying as the interest rate outlook is uncertain.
The one-year OIS rate ended nearly 7 basis points higher at 5.51%, and the two-year OIS rate rose 8 bps to 5.47%.
The liquid five-year OIS rate rose by 6 basis points to 5.70%. KEY INDICATORS: ** Benchmark Brent crude futures up 0.9% to $67.50 per barrel after easing 1.1% in previous session ** Ten-year U.S. Treasury yield at 4.2442%; two-year yield at 3.7157% (Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)
