Indian government bonds could open the week under mild selling pressure after the central bank announced measures to absorb banking-system liquidity, although expectations of a sharp rupee rally may help limit losses.
The benchmark 6.94 per cent 2036 bond yield may trade in a 7.26-7.32 per cent band, a trader with a primary dealership said, after ending at 7.2994 per cent on Friday. Bond yields rise when prices fall.
Over the weekend, the Reserve Bank of India (RBI) unveiled fresh measures to shore up the rupee, redirecting oil companies’ dollar purchases away from the spot market and tightening hedging rules as the currency hovers near record lows.
“We could have seen yet another test of over 7.30 per cent levels on the 10-year benchmark, but the rupee measures will provide an overall calm to Indian assets,” the trader said.
The RBI announced it will sell debt worth ₹25,000 crore ($2.58 billion) on Tuesday, and tightened norms of daily reserve maintenance for banks from October 16.
The moves come just days after the central bank raised its policy rate and tweaked its stance to calibrated tightening, hinting at more hikes in coming months.
It also raised its inflation forecast by 20 bps to 5.2 per cent, while core inflation, which excludes volatile food and fuel prices, was seen at 4.4 per cent from 4.3 per cent earlier.
India’s September retail inflation print is due later in the day, with a Reuters poll showing the print rising 5.4 per cent year-on-year (y-o-y).
Meanwhile, the benchmark Brent crude price remains close to the $105 per barrel mark.
Elevated energy prices could impact oil-import-dependent India’s inflation trajectory and government finances.
Rates
India’s overnight indexed swap rates may ease in line with bond yields.
On Friday, the one-year OIS rate ended at 6.24 per cent, the two-year rate closed at 6.44 per cent, while the liquid five-year rate settled at 6.7250 per cent.