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MUMBAI — Yields on Indian government bonds fell on Thursday, with the benchmark 10-year yield ending at a three-month low, after a media report citing unnamed banking sources said the Reserve Bank of India (RBI) may take a break and be guided by data after Friday’s policy decision.
The media report did not identify the banking sources.
The yield on the benchmark 10-year bond closed at 7.1566%, its lowest since May 2. The yield had ended at 7.2416% on Wednesday and ended a nine-day losing streak.
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“The news is highly speculative, but since some big players reacted, we have seen a sharp decline in yields. But the 7.15% level should be maintained until the actual decision is released with commentary from the RBI,” said a trader with a senior dealer.
The RBI’s monetary policy decision is due on Friday and market participants remain divided on the amount of the rate hike, with views widely split between 25 basis points and 50 basis points, according to a Reuters poll of Reuters. economists.
The central bank has raised the repo rate by 90 basis points to 4.90% since embarking on a tightening cycle at an unscheduled policy meeting in May, to curb inflationary pressures.
“We expect an early August policy hike of 50 basis points bearing in mind external sector pressures as the world’s major central banks continue to fight inflation and inflation in India is hovering around 7% through September,” said senior economist Upasna Bhardwaj. at Kotak Mahindra bank.
Even though inflation is expected to decline in the coming months, traders do not expect the same to head towards the RBI’s comfort zone anytime soon, which may see more upside in the coming months.
“Friday’s decision would also bring greater clarity on the final policy rate, and therefore the decision will be crucial from a medium-term perspective,” said a private bank trader. (Reporting by Dharamraj Lalit Dhutia; Editing by Uttaresh.V)
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