MUMBAI, June 17 (Reuters) – Indian government bonds are expected to open higher on Tuesday, as dovish commentary from the Reserve Bank of India Governor in an interview has eased concerns over the interest rate trajectory.
The yield on the benchmark 10-year bond is expected to move between 6.24% and 6.28%, a trader at a private bank said, compared with its previous close of 6.2732%. The five-year 6.75% 2029 bond ended at 5.9642%.
Bond yields move inversely to prices.
Inflation below the central bank’s current projections could open up policy space, India’s central bank chief Sanjay Malhotra told Business Standard newspaper in an interview, adding that incoming data will be watched closely to strike “the right growth-inflation balance”.
The change in stance “does not imply an immediate reversal in the policy cycle”, Malhotra said in the interview published on Tuesday.
Earlier this month, the Reserve Bank of India cut its policy repo rate by a steeper-than-expected 50 basis points, but changed its stance to ‘neutral’ from ‘accommodative’, prompting analysts to forecast the end of the rate-cutting cycle.
“The comments have finally provided some clarity on what was the rationale behind the monetary policy, and what can be expected in the near future,” the trader said. He, however, added that uncertainty regarding the use of variable rate reverse repos still persists.
Meanwhile, oil prices rose marginally, but the benchmark Brent crude contract stayed below $75 per barrel in Asian hours on Tuesday. Oil prices have been rising amid concerns about supply disruptions due to Middle East conflict.
India imports a bulk of its crude oil needs. Higher prices could affect the nation’s inflation outlook. RATES Indian overnight index swap (OIS) rates are expected to see some receiving interest across the curve as the dovish commentary will aid.
The one-year OIS rate was at 5.52% a day earlier, while the two-year OIS rate was at 5.51%. The liquid five-year ended at 5.73%, down 3 bps on Monday. KEY INDICATORS: ** Brent crude futures 1.8% higher at $74.60 per barrel after rising 0.9% in previous session ** Ten-year U.S. Treasury yield at 4.4264%; two-year yield at 3.9690% ** Indian states aim to raise 85 billion rupees ($990.5 million) via sale of bonds ($1 = 85.8180 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Mrigank Dhaniwala)