Indian government bond yields are expected to rise marginally in the early session on Monday, tracking a rise in U.S. yields. Underlying sentiment also remains positive, after the Reserve Bank of India surprised the market with a status quo on its policy rate on Thursday. Indian markets were shut on Friday.
The 10-year benchmark 7.26% 2032 bond yield is expected to be in the 7.21% to 7.27% range, after closing at 7.2120% on Thursday. There should be some correction in yields at the open to factor in the latest moves from U.S. Treasuries, a trader said. “Still, par levels for the benchmark should act as a strong upside for the time being.”
On Thursday, the RBI held its key repo rate steady on Thursday at 6.50% after six consecutive hikes, saying it was closely monitoring the impact of recent global financial turbulence on the economy. Most market participants now expect a prolonged pause, even though RBI Governor Shaktikanta said that the central bank stood ready to act against inflation if conditions warranted, and the decision was “a pause and not a pivot.”
Goldman Sachs expects the retail inflation to come in below 6% for the rest of the year, and now expects the RBI to remain on hold till end of 2023, while maintaining tight banking system liquidity. It expects two repo rate cuts of 25 bps each in January-March and April-June.