Mumbai: Indian federal bond yields fell to fresh 4-year low on Thursday as hopes for an interest rate cut by the Reserve Bank of India (RBI) gathered momentum amid a sharp likely fall in inflation.
At 10:29am, the 10-year bond yield was trading at 5.64%, sharply off 5.80% at close in the previous session.
It struck a trough of 5.62%, lowest since June 2004, during the trade at which stage the yield had fallen 145 basis points (bps) in December.
Volume was a normal Rs75.40 billion (US $1.6 billion) on the RBI’s trading platform with the 10-year bond being the most traded security.
“Yields may trade in the range of 5.60% to 5.70% during the day,” said Anoop Verma, an associate vice president with Development Credit Bank.
Analysts expect the RBI to cut the short-term repo and reverse repo rates by 50 bps each in its 27 January policy meet to curb an economic slowdown.
Annual inflation is seen falling sharply to a 9-month low of 7.49% in early December from 8% a week earlier, a Reuters poll showed.
A decline in inflation would allow the RBI to focus mainly on reviving the slowing economy by cutting the rates.
The RBI, in a report on the banking sector, said on Wednesday that slowing economic growth was the current policy concern but added the economy should return to its high growth trajectory once global conditions recover.