India’s 10-year bond yields likely to dip below 6.70 pct mark as lower inflation offers room for further rate cut

The Indian 10-year Treasury yields are likely to fall below 6.70 percent mark as lower inflation due to normal rainfall after three successive years offered space to the Reserve Bank of India to lower the repo rate further in its upcoming monetary policy meeting.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell nearly 60 basis points to 6.855 percent on rising speculation that the new RBI Governor will move in line with the economic growth agenda of the central government.

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.