RBI policy verdict, guidance to drive nervous bond market traders
The benchmark 6.94% 2036 bond yield may trade in a 7.18%-7.20% band till the policy decision at 10 a.m. IST, a trader with a primary dealership said, after ending at 7.1928% on Tuesday
Indian government bonds are expected to open largely unchanged on Wednesday as markets await the central bank's monetary policy decision, with an interest rate hike already priced in. Traders anticipate further liquidity withdrawal, with the benchmark 6.94 per cent 2036 bond yield possibly trading between 7.18%-7.20 per cent until the policy announcement at 10 a.m. IST.
Bond yields rise when prices fall. Investors are cautious, expecting a hawkish monetary policy decision and fearing additional actions. About 60% of economists believe the Reserve Bank of India will raise its key policy rate by 25 basis points, although traders do not rule out a larger 50-basis point hike. HSBC suggests the central bank may need to remove around 6 trillion rupees of liquidity from the banking system in the coming months, with currency in circulation potentially covering 2 trillion rupees.
The remaining amount could be addressed through existing instruments like open market operations, foreign exchange spot sales, foreign exchange swaps, and vertical reverse repo facilities. India's overnight indexed swap rates are expected to remain rangebound until the policy decision, with guidance acting as the key catalyst for further changes.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
