Bond yields may ease, RBI minutes show rate-cut cycle may not be over

Government bond yields may ease in early deals on Thursday, as minutes from the Reserve Bank of India's latest meeting were slightly dovish, keeping the door open for at least one more rate cut this year.

The benchmark 10-year bond yield is expected to trade in a range of 6.48%-6.52%, after ending at 6.4969% on Wednesday.

"The tone in the minutes was slightly better than the actual policy, and has further cemented hopes that there would be at least one more cut in the offering," the trader said.

The monetary policy committee members flagged evolving risks from global trade tensions and tariffs as a key drag on growth, but said the economy remains resilient with the inflation outlook benign, minutes of the August meeting showed.

"Growth projected at 6.5% is resilient," RBI Governor Sanjay Malhotra wrote in the minutes released on Wednesday, but added the projection was "certainly lower than what we can achieve."

The RBI held its key repo rate steady earlier this month, after cutting it by 100 basis points in February-June.

Barclays revised its inflation forecast for the current financial year to 2.7% from 3.5%, and said that as the RBI is faced with even lower inflation outcomes versus the estimated trajectory, the policy repo rate could be cut further by 25 bps in October.

Traders also remain focused on how the government will tackle fiscal worries, after Prime Minister Narendra Modi unveiled sweeping goods and services tax reforms, which are expected to increase the fiscal burden.

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RATES

India's overnight index swap rates could trade with a receiving bias after easing in the previous session.

The one-year OIS rate ended at 5.5250% and the two-year OIS rate closed at 5.4750% on Wednesday. The liquid five-year OIS declined 2 bps to 5.7150%. KEY INDICATORS: ** Benchmark Brent crude futures were 0.4% up at $67.10 per barrel, after rising 1.6% in the previous session ** Ten-year U.S. Treasury yield was at 4.2946%; two-year yield at 3.7541% ** RBI to conduct overnight variable rate repo auction for 500 billion rupees ($5.75 billion) ($1 = 87.0240 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Eileen Soreng)