Mumbai: The yield on India's 10-year government bond fell for a third day on Thursday to hit a near one-month low following an unchanged fiscal second half borrowing calendar and on expectation of another rate cut by the Reserve Bank of India (RBI).
At 12.50 pm, the yield on the 10-year bond was down 6 basis points at 6.609% - a level last seen on 9 September. On Tuesday, the yield had settled at 6.664%. Indian financial markets were shut on Wednesday for Gandhi Jayanti.
RBI will issue its bi-monthly policy statement on Friday, with the central bank expected to lower its benchmark repo rate by 25 basis points to 5.15%, according to a Bloomberg survey of economists. The central bank had cut rates by 35bps in August.
Despite expectation of fiscal slippage due to a cut in corporate tax and an unchanged borrowing program, Care Ratings expects another rate cut due to continued weakness in the economy and limited upside risks to inflation.
"An unchanged 2H borrowing schedule provided relief but didn’t fully allay fiscal slippage concerns. Monthly fiscal math will be watched for direct and indirect tax revenue trends which will become clearer in 4Q19 and dictate the need for a wider fiscal deficit. Apart from tax revenues, the math might require renewed push towards disinvestment, other support (dividend payout, subsidy rollovers etc) and expenditure curtailment", said Radhika Rao, economist at DBS Bank, in a 3 October note.
"Prima facie, we see risks of a miss to the FY20 fiscal deficit target to -3.5-3.6% of GDP vs budgeted -3.3%. Reliance will be on the INR debt markets, as the maiden offshore bond issuance has been ruled out this year," Rao said.
Meanwhile, the Indian rupee recovered from losses made earlier in the day, and was little changed against the US dollar. The domestic currency had opened weaker and hit a two-week low of 71.35. At 12.50 pm, the rupee traded 71.08 to a dollar, up marginally from Tuesday's close of 71.08.
In the year so far, the rupee has weakened 1.8%, while foreign investors have bought nearly $8.16 billion in Indian equities and $3.97 billion in debt during the period.