Updated February 23rd, 2024 at 12:07 IST

Bond yields stable as market assimilates RBI minutes

RBI Governor Shaktikanta Das said that, at present, "monetary policy must remain vigilant and not assume that our job on the inflation front is over."

Reported by: Business Desk
Bond market news | Image:Republic World
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Indian bond market updates: The government bond market exhibited minimal movement in the early trading session on Friday, as investors absorbed the minutes from the Reserve Bank of India's February meeting, which indicated that most members deemed the current interest rates appropriate.

The benchmark 10-year yield IN071833G=CC hovered around 7.0723 per cent as of 10:00 am, closely mirroring its previous close of 7.0682 per cent.

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According to a trader from a state-run bank, "Minutes are slightly hawkish but are not adding any fresh concerns to the interest rate trajectory than what was said during the policy and with no supply in the next few weeks, bonds are consolidating."

In the released minutes, RBI Governor Shaktikanta Das emphasised that, at present, "monetary policy must remain vigilant and not assume that our job on the inflation front is over."

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The six-member Monetary Policy Committee (MPC), consisting of three RBI and three external members, opted to maintain the key repo rate at 6.50 per cent for the sixth consecutive meeting. Since May 2022, the central bank has raised rates by 250 basis points.

Furthermore, the RBI reiterated its commitment to achieving the 4 per cent inflation target on a sustainable basis.

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India's retail inflation decelerated to a three-month low of 5.10 per cent in January, down from 5.69 per cent in December and 5.55 per cent in November.

While inflation moderated last month, the path toward the RBI's 4 per cent midpoint within the 2-6 per cent target range is expected to be gradual, suggesting that the central bank is unlikely to shift its stance yet. Rate cuts are anticipated to materialise only in the latter half of the year, as forecasted by Capital Economics.

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Meanwhile, U.S. yields remained elevated, with the 10-year yield US10YT=RR hovering around the 4.35 per cent mark. Traders cautioned that a breach could propel yields toward 4.50 per cent, triggering a sell-off in local bonds.

Strong economic indicators and a higher-than-anticipated inflation reading in the world's largest economy have dampened hopes of imminent rate cuts.

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According to the CME FedWatch tool, the likelihood of a Fed rate cut in May has dwindled sharply to 24 per cent from 38 per cent last week and 84 per cent last month.

(With Reuters inputs.)
 

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Published February 23rd, 2024 at 10:47 IST