The yield on the benchmark 10-year was at 7.1069% as of 11:10 a.m. IST, after closing at 7.0934% on Thursday. It had hit 7.1217%, the highest since Feb. 14, after the policy decision.
The monetary policy committee (MPC) held the key repo rate unchanged at 6.50% for a seventh straight policy meeting. Robust growth provides space for monetary policy to remain focused on bringing inflation down to the central bank’s 4% target, Governor Shaktikanta Das said in his statement.
The RBI expects the economy to expand by 7% in fiscal year 2025, unchanged from its earlier forecast, while it sees retail inflation at 4.5%, with volatile food prices seen as a continuing risk.
While bull-steepening of India bonds looks to be a popular trade, the consistent repricing of Fed cuts could spill over into the RBI’s reaction function and will be cyclically noisy, said Madhavi Arora, a lead economist at brokerage Emkay Global.
Market participants will now shift the focus to the start of the government’s borrowing programme for the current financial year, as New Delhi looks to raise 380 billion rupees ($4.56 billion) via multiple price-based auctions, which the RBI reverted to after a gap of three years. This auction includes 200 billion rupees of a new 10-year bond that will soon replace the existing benchmark, although it is not expected to command any significant premium. “Some caution on inflation means there are no hopes of an early start to rate cuts, which is getting reflected in prices, and cutoff for the new 10-year will now become the guiding factor,” a trader with a primary dealership said.
