The Indian government bonds continued to rally Friday after the Bank of England announced higher than expected policy easing with 0.25 percent cut in bank rate and 60 billion of additional bonds purchase.
The yield on the benchmark 10-year bonds, which moves inversely to its price, fell more than 1 basis point to 7.160 percent, the yield on super-long 30-year bond also dipped 1-1/2 basis points to 7.364 percent and the short-term 2-year note yield slid 1/2 basis point to 6.845 percent by 07:10 GMT.
The Bank of England’s MPC meeting has ended the decisions with a 0.25 percent (25 basis points) cut of bank rate to a record low of 0.25 percent, from 0.5 percent previously. This was the first such move since March 2009.
It has also declared to increase the quantitative easing (QE) by an additional 60 billion pounds of gilt and top-tier corporate bond purchases of 10 billion pounds, which shall be financed via reserves issuance.
Though the bank rate cut was widely expected, but the quantitative easing was not factored in and neither was the forward guidance of the likelihood of a further cut in the Bank Rate to close to zero during the course of the year.
Markets await the announcement of the new RBI chief, which is anticipated to happen in the ongoing monsoon session of the Parliament.
We foresee that the RBI will keep its key policy interest rate unchanged in its next week’s monetary policy meeting in the wake of higher retail and wholesale inflation reading. Also, uncertainties surrounding global economy after Britain voted to leave the European Union will keep the RBI on pat.
Moreover, the Goods and Services Tax (GST) has been passed in the upper house of the Parliament of India, after receiving unanimous support for 'one nation, one tax' concept. This indirect tax reform has been awaiting clearance for several decades now and is likely to provide temporary boost to the domestic markets, with this vote was largely priced-in in the past month.
According to Reuters, the Reserve Bank of India will auction four bonds worth 150 billion rupees, including 80 billion rupees of 7.61 percent 2030 bond later today. The central bank will also auction state development bonds maturing in five years and 10 years, worth at least 122.50 billion rupees on August 8, against an earlier scheduled of 130 billion rupees.
Lastly, investors will remain keen to focus on next week’s monetary policy decision, the last one by the Reserve Bank of India Governor Raghuram Rajan.
Meanwhile, the Sensex rose 0.99 percent or 265 points to 27,979 and Nifty-50 futures trading 0.80 percent higher or 68 points at 8,674 by 07:40 GMT.
