India Bonds Pare Gains as RBI Desists Rate Cut, Plans Cash Boost
Sovereign bonds in India gave up some gains after the central bank didn’t join its peers in cutting interest rates.
(Bloomberg) -- Sovereign bonds in India gave up some gains after the central bank didn’t join its peers in cutting interest rates and instead chose to inject cheap rupee liquidity.
The Reserve Bank of India will do another one trillion rupees of longer-term repos, Governor Shaktikanta Das told reporters on Monday. Separately, the central bank will do another forex swap on March 23 to provide dollar liquidity to the market. The measures fell short of markets’ expectations.
The yield on the benchmark 10-year bond closed down 11 basis points at 6.21%, though it came off the day’s low of 6.12%. The rupee weakened 0.5% at 5 p.m. in Mumbai, not far from its record lows of 74.5250 to a dollar seen last week.
“There is a slight disappointment in the bond market as the RBI didn’t announce a rate cut,” says Debendra Dash, a fixed-income trader in Mumbai at AU Small Finance Bank. “Short-end bonds may see some more gains, but you can’t expect a big rally in bonds on the back of LTRO alone.”
Asian central banks went into a firefighting mode Monday after the Federal Reserve slashed its rates to address the rapidly mounting economic shock of the coronavirus pandemic. New Zealand and the Bank of Korea reduced their benchmark rates in emergency moves, while the Bank of Japan doubled its target for net purchases of exchange-traded funds while holding its rate as it gathered Monday instead of Thursday as scheduled.
Bond traders have been speculating about the imminent rate cuts in India after central banks across the world took measures to shield their economies from the impact of the coronavirus. The Reserve Bank of India provided $2 billion of dollar liquidity to markets on Monday via a forex swap as it uses unconventional tools to tackle the crisis.
Traders expected RBI to cut rates by at least 50-65 basis points this week, ICICI Securities Primary Dealership Ltd.’s head of fixed income Naveen Singh said before the announcement. RBI’s Das, however, said the bank would take all necessary steps as needed to protect the economy.
The Fed slashed its benchmark rate by a full percentage point to near zero and promised to boost its bond holdings by nearly $700 billion as it braced for the fallout from the virus.
The RBI has so far desisted from lowering borrowing costs, citing high inflation though price pressures eased starting last month. It has instead relied on a Federal Reserve-style Operation Twist to reduce long-term yields and announced European Central Bank-like long term repos to enable better transmission of last year’s five rates.
To contact the reporters on this story: Subhadip Sircar in Mumbai at ssircar3@bloomberg.net;Kartik Goyal in Mumbai at kgoyal@bloomberg.net
To contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Anto Antony, Ravil Shirodkar
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