Sovereign bonds in India fell after the central bank’s interest rate setting panel meeting showed that its members have turned more hostile over inflation, pushing back bets on further rate cuts.
The defer on the new 5.77% 2030 bond raised five basis points to 6%, after gaining 18 basis points in the earlier two weeks. Traders are watching for demand at a 300 billion rupee bond sale on Friday after previous week’s auction of the new benchmark, 10-year paper had to be rescued by underwriters.
The rate panelists worried over a recent surge in consumer inflation, preferring to wait for price pressures to wane before considering more steps to address the “deepest contraction in history,” minutes of the Monetary Policy Committee’s August. 4 to 6 meeting published on Thursday showed. The fading rate cut hopes come even though central bank is yet to show its hand on further bond purchases to help ease a record 12 trillion rupees supply in the fiscal year.
“We now believe we are at the end of the rate cut cycle and expectations of large cuts must be anchored (ideally 25, base case 50) as inflation is unlikely to materially decline from the current levels,”group chief economic adviser at State Bank of India, Soumya Kanti Ghosh wrote in a note. “We believe it would better serve the financial markets if RBI continues to resort to unconventional policy measures.”