Indian bond yields flat, traders await cenbank's liquidity guidance
By Dharamraj Dhutia
MUMBAI, Aug 8 (Reuters) -Indian government bond yields were barely changed in early trading on Thursday, as traders awaited commentary from the Reserve Bank of India for liquidity management along with its monetary policy decision.
The benchmark 10-year yield IN071034G=CC was at 6.8624% as of 9:40 a.m. IST, compared to its previous close of 6.8632%.
The RBI is widely expected to hold rates steady in its decision due at 10:00 a.m. IST, but with growing worries about the global economy investors are hoping for a more dovish tone.
A slim majority of economists in a Reuters poll are expecting the first rate cut in October-December. While most expect 50-75 basis points of cuts, Bank of America's Vikas Jain said he expects 100 bps of cuts.
Traders will also look out for an increase in transaction limit for foreign investors in overnight index swaps.
HSBC said it expects the RBI's policy stance to remain unchanged, but the central bank will likely sound more confident than before about getting to its 4% inflation target.
LIQUIDITY MANAGEMENT
India's banking system has stayed in a substantial surplus since the start of July, and traders are anticipating this to persist over the next few weeks.
Daily average bank liquidity has stayed at a surplus of 1.3 trillion rupees ($15.49 billion) since the start of July, and hit a two-year high in early August.
"Government expenditure has been picking up, currency is returning back to banking system, along with dollar purchases from the central bank and these factors have led to a rise in surplus," said Gaura Sen Gupta, chief economist at IDFC First Bank.
"RBI is likely to continue to stick with variable rate reverse repos to ensure call rate remains near the repo rate and would continue debt sales in secondary market. They could also use FX intervention to limit rupee liquidity," Sen Gupta added.
($1 = 83.9325 Indian rupees)
Reporting by Dharamraj Dhutia; Editing by Varun H K
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
