BackIndian bonds slump as RBI holds repo rate
The yield on 10-year sovereign bonds jumped 16 basis points to 6.36% as of 3.12pm in Mumbai, according to prices from the RBI's trading system
Premium
Mumbai: Indian sovereign bonds reversed gains after policy makers surprisingly kept interest rates unchanged ahead of a probable increase in United States borrowing costs this month. The monetary policy committee led by Reserve Bank of India governor Urjit Patel unanimously left the benchmark repurchase rate at 6.25%, according to a central bank statement in Mumbai on Wednesday. The outcome was predicted by only eight of 44 economists in a Bloomberg survey, while 31 expected a cut to 6% and five saw a reduction to 5.75%.
The yield on government notes due September 2026 jumped 16 basis points to 6.36% as of 3.12pm in Mumbai, according to prices from the RBI’s trading system. The rupee also erased an advance and was little changed at 67.9150 per dollar. “Bonds are reacting negatively as a rate cut and some liquidity easing was priced in by the market," said Gopikrishnan MS, the Mumbai-based head of foreign exchange, rates and credit for South Asia at Standard Chartered.
Consumer-price inflation slowed to a 14-month low in October, spurring bets for monetary easing. Calls for a rate cut intensified after demonetisation move announced on 8 November that invalidated 86% of India’s currency in circulation. Global banks including Credit Suisse Group AG and Deutsche Bank AG slashed full-year growth forecasts for Asia’s third-largest economy.
While “supply disruptions in the backwash of currency replacement may drag down growth this year, it is important to analyze more information and experience before judging their full effects and their persistence – short-term developments that influence the outlook disproportionately warrant caution with respect to setting the monetary policy stance," according to the MPC’s statement on Wednesday. “If the impact is transient as widely expected, growth should rebound strongly."
Bonds in India had surged in the run up to the policy decision as the currency recall saw citizens rushing to banks to deposit the defunct notes, flooding the financial system with cash and boosting demand for debt. The 10-year yield sank 55 basis points in November. The central bank on Wednesday said it will withdraw the temporary increase in lenders’ cash reserve ratio requirement that it announced last month. Bloomberg
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
