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Home / Market / Stock-market-news /  10-year bond yield slumps 17 bps as RBI cuts inflation forecast

Mumbai: The 10-year bond yield on Thursday tumbled 17 basis points to hit a near four-month low as traders cheered Reserve Bank of India’s (RBI) decision to cut inflation forecast.

The 10-year bond yield ended at 7.127%, down 16.60 basis points compared to its previous close of 7.294%. Bond yields and prices move in opposite directions.

RBI’s monetary policy committee (MPC) has decided to keep repo rate—the rate at which the central bank infuses liquidity in the banking system—at 6%. Mint poll also predicted that RBI to hold rates.

RBI unexpectedly lowered its inflation forecast. Now it projects 4.5% consumer price inflation for fourth quarter of fiscal year 2018. For first half of fiscal year 2019, inflation forecast at 4.7-5.1% and for second half forecast at 4.4-4.5%.

“The status quo on rates and stance is in line with expectations, but the downward revision to inflation forecasts is a positive surprise and suggests no imminent policy tightening", said Nomura Research in a note to its investors.

In February meeting, RBI projected 5.1% for Q4 of FY18; and in the range of 5.1-5.6% in first half FY19 and 4.5-4.6% in second half.

“We expect the repo rate to be left unchanged throughout 2018 as recent banking sector developments have raised concerns about the sustainability of the growth up cycle and underlying inflation remains 4.0-4.5%, on our estimates, providing a sufficient real rate cushion. However, coming policy meetings are still prone to higher risk of a shift in the policy status quo owing to strong Q1 GDP growth data (due in end-May), higher headline/core inflation (in Q2) and the impending decision on MSP policies (around end-May/June)", Nomura report added

The bond rally started after last week government reduced its borrowing programme for first half and RBI allowed banks to spread provisioning for mark-to-market (MTM) losses incurred during December 2017 and March 2018 equally over up to four quarters

Benchmark Sensex rose 1.75%, or 577.73 points, to 33,596.80. So far this year, it has declined 1.5%.

Meanwhile, rupee closed stronger at 64.96, up 0.28% from its previous close of 65.15. So far this year, the rupee has fell 1.7%, while foreign investors have bought $2.05 billion in equity and bought $138 million in debt market.

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