Rupee, bond prices rise after RBI minutes

Mumbai: Yields on the 10-year government bonds fell for the fifth consecutive session on Thursday after the Reserve Bank of India’s (RBI) June meeting minutes signalled that the central bank will rely on data for future rate hike decisions. Meanwhile, the rupee pared all the losses and rose past 68 mark against the US dollar.

The 10-year bond yield closed at 7.74% from its Wednesday’s close of 7.827%. Bond yields and prices move in opposite directions.

RBI’s June policy meeting minutes gave no indication of future rate action, citing uncertainties around oil and food prices, according to the minutes released on Wednesday. However, all the members were unanimous in their readings on inflation and growth.

On June 6, RBI voted unanimously to hike policy rates by 25 basis points to 6.25%, the first increase in more than four years. However it kept the policy stance neutral, keeping options open for further rate hikes.

“The minutes reinforce our view that the rate-hike cycle will be shallow. As a base case, we expect the RBI to remain cautious and possibly deliver another 25 bps rate hike in August given risks of headline inflation remaining higher than 4% target and further broad-based increase in core inflation. The RBI will likely wait for most inflation risks to play out and will be data-dependent” said Kotak Institutional Equities in a note to its investors.

“Specifically, the MSP policy and its actual impact (amid a normal monsoon) would be crucial—clarity of which will come with a lag. A lagged adverse impact due to MSP even with crude and INR behaving favorably, could delay the rate hike to October. On the contrary, with the best combination of usual MSP increases, well-behaved crude and INR moves and no geopolitical or financial shocks, it may well be possible that the RBI pauses, for now. The evolution of the prevailing global and domestic risks needs to be monitored”, the report added.

All the members shared their concerns on increase in crude oil prices, rise in household inflation expectations, and the government’s decision on minimum support prices (MSP).

The rupee ended at 67.99 against US dollar, up 0.11% from its previous close. Earlier, it weakened by 0.2% tracking losses in Asian currencies market as traders waited for developments in the US-China trade dispute.

Benchmark Sensex Index fell 0.32% or 114.94 points to 35,432.39. Since January, it has gained 3.5%

So far this year, the rupee has weakened 6.2%, while foreign investors have sold $797.60 million and $5.45 billion in equity and debt markets, respectively.