Indian bonds rise ahead of RBI’s bi-monthly monetary policy meeting, 25bps repo cut likely on the cards

The Indian government bonds gained Monday ahead of the Reserve Bank of India’s (RBI) last two-day bi-monthly monetary policy meeting of 2016, which is scheduled on December 6-7. The decision is expected to be released on Wednesday.

We continue to foresee that the 10-year bond yields to fell below 6 percent mark if the central bank cuts repo rate for the second time by 25 basis points to 6 percent.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 2-1/2 basis points to 6.20 percent, the yield on long-term 24-year note dipped 2-1/2 basis points to 6.75 percent and the yield on 5-year note slid 3 basis points to 6.17 percent by 07:00 GMT.

The RBI next bi-monthly two-day monetary policy meeting is scheduled to be held on December 6-7. It is widely expected that the current trend of lower inflation expectations will provide wider space for the Governor Urjit Patel for further monetary easing. We foresee that the central bank will lower its repo rate by 25 basis points to 6 percent in its two-day monetary policy decision on Wednesday.

Moreover, the recent demonetisation drive of India government could be disinflationary in the near term and therefore strengthen the case for the Reserve Bank of India to ease in December.

Meanwhile, the Sensex traded flat at 26,243, while Nifty-50 futures traded 0.28 percent higher or 23 points at 8,131 by 07:30 GMT.