Wednesday, September 27

India bond yields seen lower on weak oil prices, RBI policy decision key

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MUMBAI — Indian government bond yields are expected to fall in early deals on Friday, tracking global oil prices, while investors awaited a central bank policy decision due later in the day.

The yield on the 10-year benchmark bond is likely to trade in a 7.11%-7.16% band until the Reserve of Indian’s monetary policy decision, a trader with a private bank said. It closed at 7.1516% on Thursday.

“We may see some initial moves tracking oil prices, which have touched levels last seen before Ukraine’s invasion by Russia, but major activity will take place only after the policy decision,” the trader said.

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Oil prices dropped on Thursday, with the benchmark Brent crude contract easing to $93.20 per barrel – its lowest since Feb. 21, as concerns grew that higher inflation would impact global growth and demand for fuel.

Meanwhile, market participants remain divided over the quantum of an expected RBI rate hike, with views widely split between 25 basis points and 50 basis points, according to a Reuters poll of economists.

The central bank has raised the repo rate by 90 basis points to 4.90% since embarking on a tightening cycle at an unscheduled policy meeting in May, to curb inflationary pressures.

The RBI is likely to hike the policy repo rate by 35 basis points, but may also revise its inflation forecast upwards and growth forecast downwards, Sunidhi Securities said in a note.

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“A shift to a slower pace of rate hike by the RBI after an initial front-loading is our underlying expectation from the August MPC (Monetary Policy Committee) policy,” said Siddharth Kothari, an economist with Sunidhi Securities.

Traders said any rally in the benchmark 10-year bond may also be limited ahead of a bond sale on Friday. New Delhi will sell bonds worth 330 billion rupees ($4.17 billion), including 130 billion rupees of the benchmark note.

KEY FACTORS: * Brent crude futures up 0.3% at $94.4 per barrel after slipping 2.7% in the previous session * Ten-year US Treasury yield at 2.69% after easing 7 bps on Thursday. * RBI to set underwriting fees for 330 billion rupees weekly bond auction. * India to sell federal government bonds worth 330 billion rupees. ($1 = 79.1230 Indian rupees) (Reporting by Dharamraj Lalit Dhutia; Editing by Subhranshu Sahu)