Indian bonds gain as RBI announces a long-awaited OMO

The Indian government bonds gained Friday after the Reserve Bank of India announced its long-awaited open market operation (OMO) of Treasury notes.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 1 basis point to 6.838 percent, the yield on super-long 30-year note also dipped 1 basis point to 7.192 percent and the yield on short-term 2-year note slid nearly 1 basis point to 6.568 percent by 07:00 GMT.

According to latest Reuters poll, majority of the economist expects the RBI to cut repo rate by 25 basis points to 6.0 percent in the first quarter of 2017. Also, economy to grow 7.7 percent in fiscal year ending 2017 and CPI forecast to average 5.1 percent in fiscal year 2016/17, as compared to previous 5.4 percent in July poll.

According to Reuters, the Reserve Bank of India has bought bonds worth over one trillion rupees through the so-called open market operations so far this fiscal year, as it aims to infuse durable liquidity into the banking system. However, the last such purchase auction was held on September 8. India will borrow 150 billion rupees by selling four bonds today. The auction includes 70 billion rupees of the 7.61 percent 2030 note.

Last week, wholesale prices in India rose during the month of September at a pace slower than what markets had initially anticipated. India’s annual rate of inflation based on wholesale prices eased on a month-on-month basis to 3.57 percent in September from 3.74 percent in August. The annual wholesale inflation during the corresponding period last year stood at -4.59 percent.

After rising for the first time in April following 17 straight months of contraction, the Wholesale Price Index (WPI) has cumulatively risen by 4.28 percent in the current fiscal up to September. Meanwhile, wholesale food prices last month rose 5.75 percent year-on-year, compared with a provisional 8.23 percent gain in August.

Moreover, with India receiving 97 percent rainfall between June and September, the monsoon was "normal" this year, the India Meteorological Department (IMD) said on Thursday.

The Reserve Bank of India in its two-day monetary policy meeting held last Tuesday, saw newly appointed monetary policy committee (MPC), headed by new governor Urjit Patel announce a rate cut by 25 basis points. All six of the monetary policy committee unanimously voted in favour of the rate cut.

Meanwhile, the Sensex fell 0.43 percent or 122 points to 28,008 and Nifty-50 futures traded 0.36 percent lower or 32 points at 8,679 by 07:10 GMT.