Mumbai: The yield on the 10-year government bond yield closed below 7% for the first time since November 2017, as falling crude oil and slowing economic growth boosted speculation of monetary easing by the Reserve Bank of India (RBI) in its next bi-monthly policy.
The yield on India’s 10-year benchmark bonds fell 5 basis points at closing to 6.982%, the lowest level since 22 November 2017. Yields had fallen by 42 basis points (bps) in May, the most since November 2016, helped by foreign inflows after Prime Minister Narendra Modi’s election win.
Meanwhile, the Indian rupee ended at a one month high at 69.27 a dollar, up 0.63% from its previous close. Benchmark index Sensex rose 1.39% to 40,267.62 points.
"With the slowdown in growth, muted inflation, and political stability with limited chances of excessive fiscal populism, we believe the odds of a June rate cut by the monetary policy committee (MPC) are now significantly higher," said Nirmal Bang in a note to its investors.
India's gross domestic product (GDP) growth for the March quarter fell to 5.8%, its slowest pace in five years, official data showed on Friday. That was slower than the median 6.3% estimate in a Bloomberg survey and 6.6% expansion in October-December.
Oil prices extended declines as an increasingly aggressive US trade policy fueled fears the world could be heading for a significant economic slowdown. Crude fell as much as 3%, after slumping 5.5% on Friday. In the last five trading sessions, crude has declined nearly 13%.
The RBI monetary policy decision is due on Thursday and according to economists and bankers surveyed by Mint, the central bank is likely to cut the key policy rate by 25 bps.
"If accompanied by a change of stance to accommodative, this would imply the possibility of another rate cut by October. Nevertheless, some of the uncertainties which led us to believe an August rate cut was more likely still remain," the Nirmal Bang report added.
So far this year, the rupee has risen 1% against the greenback. During the period, foreign investors bought $11.05 billion in Indian equities and sold $39.4 million in the debt market.
Falling global yields also added to the positive sentiment. The dollar fell against major peers as declining Treasury yields and bets for a US interest-rate cut weighed. Traders are watching for the next salvo in the trade war after Washington took aim at Mexico and India, and Beijing imposed retaliatory tariffs on US goods.
(Bloomberg contributed to this story)