JOIN USBond yields seen lower after RBI governor says inflation to ease
Indian government bond yields are likely to fall in early trade on Tuesday, after the Reserve Bank of India (RBI) chief said inflation is expected to ease in the second half of this financial year.
The benchmark 10-year Indian government bond yield is likely to trade in the 7.19 per cent - 7.25 per cent band, a trader with a private bank said. The yield fell one basis point (bps) on Monday to end at 7.2182 per cent.
"The RBI governor's comments may release some fears of an elevated inflation and that could see the pace of future rate hikes being tapered down which could aid today," the trader said.
RBI Governor Shaktikanta Das said at an event on Monday that while incoming monthly inflation data in the near term could be bumpy, it was expected to moderate in the second half.
Inflation was likely to move within the central bank's tolerance band, fixed at 2 per cent - 6 per cent, in January-March 2023, and then further ease in the first quarter of next fiscal year, he added.
India's July retail inflation dipped to 6.71 per cent, easing for the third month in a row, but remained above the RBI's tolerance band for the seventh consecutive month. The data for August is due next week.
Underlying sentiment remains strong, as investors expect some progress in terms of Indian bonds being included in global indexes which could spur inflows, traders said.
Morgan Stanley said in a report that it sees a "good chance" of JPMorgan including Indian government bonds in its emerging markets index, and expects the benchmark bond yield to drop 25 bps from current levels.
According to media reports, JPMorgan was speaking to large investors about adding India to its emerging markets bond index, while Goldman Sachs had previously said it expects an inclusion in 2023, estimating inflows of $30 billion.