Inside Financial Markets

India’s 10-Year Bonds Decline as RBI Policy Seen More Hawkish

indiaIndia’s 10-Year Bonds Decline as RBI Policy Seen More Hawkish

India’s 10-year sovereign bonds fell the most in a week after central bank Governor Raghuram Rajan left interest rates unchanged and pledged to curb inflation.

The Reserve Bank of India kept its benchmark repurchase rate at 8 percent today, while reducing lenders’ statutory liquidity ratio to 22 percent from 22.5 percent and cutting the proportion their bond holdings that are shielded from market fluctuations to 24 percent from 24.5 percent.

“The policy isn’t too encouraging for the bond market,” said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai. “Liquidity will determine how bonds behave in the immediate near-term.”

The yield on the benchmark 10-year notes rose seven basis points, or 0.07 percentage point, to 8.57 percent at 12:21 p.m. in Mumbai, according to the central bank’s trading system. That’s the biggest increase since July 30. The rupee rose less than 0.1 percent to 60.8988 per dollar, according to prices from local banks compiled by Bloomberg.

The monetary policy statement is “slightly more” hawkish, said Jayesh Mehta, head of treasury at Bank of America Merrill Lynch in Mumbai. “The RBI has dropped the June reference of a rate-cut window if inflation sustains below 8 percent by January.”

Rajan left borrowing costs unchanged in June and said the central bank may have room to ease rates if inflation slows faster than anticipated. While consumer prices rose 7.31 percent in June from a year earlier, the slowest pace since January 2012, a deficient monsoon is threatening to rekindle inflation.

One-month implied volatility, a gauge of expected moves in the exchange rate used to price options, dropped 14 basis points to 6.85 percent.

Three-month offshore non-deliverable forwards rose 0.2 percent to 61.82 per dollar, according to data compiled by Bloomberg. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars

Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)