Mumbai: Bond yields fell to their lowest in almost two weeks on Friday after data showed economic growth slumped to a near six-year low in the December quarter and raised expectations of early rate cuts.
The yield on the 8.24% bond maturing in 2018 ended at 6.34%, off an early trough of 6.30%, its lowest since 16 February, but 17 basis points (bps) lower than Thursday’s close of 6.51%.
Volume on the Reserve Bank of India’s trading platform was heavy at Rs93.25 billion ($1.8 billion), with the 2018 bond the most heavily traded. “The low GDP data has heightened expectations that a rate cut is round the corner,” a dealer with a private bank said.
Country’s economy grew 5.3% in the December quarter from a year earlier, slowing sharply from the previous quarter’s 7.6% as the global economic crisis cut demand and exports, official data showed.
Analysts said the weak growth data made it unlikely expansion in the full fiscal year to end March would reach the government’s estimate of 7.1%, and could encourage the apex bank to cut policy rates as early as this weekend.
The RBI kept its key rates unchanged at its policy review on 27 January, after lowering them and banks’ cash reserve requirements aggressively since mid-October.
The repo rate at which the RBI lends to commercial banks, has been cut by 350 bps to 5.5% while the cash reserve ratio, the proportion of deposits that banks keep with the apex bank on deposit, has been lowered by 400 bps.
Traders had also awaited a bond auction announcement during the session. After market hours, the government said it will borrow Rs120 billion through a bond auction on 6 March.