<p>Mumbai: The drop in India's benchmark bond yields and swap rates signals the central bank may address weaker-than-expected economic growth by easing monetary policy, which, traders say, will likely be via a lower cash reserve ratio than by interest rate cuts.</p>.<p><strong>Why it's important</strong></p>.<p>The Reserve Bank of India's monetary policy decision is due on Friday but elevated inflation may prevent an immediate cut in policy rates, treasury officials said.</p>.<p>In that light, easier liquidity conditions will bring down market interest rates even without a direct policy rate cut.</p>.<p>Therefore, market participants expect the RBI to start easing liquidity via lowering the CRR, setting the stage for rate cuts from early 2025.</p>.PM's entire focus not on reducing inflation but on data manipulation, propaganda: Congress.<p>They are also not ruling out liquidity infusion through long-term repurchase auctions, dollar/rupee swaps and debt purchases.</p>.<p><strong>Context</strong></p>.<p>India's economy grew a weaker-than-expected 5.4% in July-September due to weaker expansions in manufacturing and consumption, data showed on Friday.</p>.<p>And while the growth rate hit a seven-quarter low, inflation was above the central bank's comfort range at 6.2% in October.</p>.<p><strong>Market reaction</strong></p>.<p>Overnight index swap rates -- the closest gauge of interest rate expectations -- have slumped in response to the GDP data.</p>.<p>The one-year OIS rate was at 6.30%, down 21 basis points from Nov. 28, while the five-year rate was at 5.99%, down 18 bps.</p>.<p>Bond yields also eased, with the 10-year benchmark bond yield down 8 basis points to 6.72%.</p>.<p><strong>Key quote</strong></p>.<p>"There has been a build-up in momentum related to pricing in of a rate cut in the upcoming policy due to a lower-than-expected GDP growth," said Alok Sharma, head of treasury at ICBC.</p>.<p>"We expect RBI to cut the CRR by 50 bps. That would address the tight liquidity and prep up the market for a 25 bps cut in February 2025."</p>
<p>Mumbai: The drop in India's benchmark bond yields and swap rates signals the central bank may address weaker-than-expected economic growth by easing monetary policy, which, traders say, will likely be via a lower cash reserve ratio than by interest rate cuts.</p>.<p><strong>Why it's important</strong></p>.<p>The Reserve Bank of India's monetary policy decision is due on Friday but elevated inflation may prevent an immediate cut in policy rates, treasury officials said.</p>.<p>In that light, easier liquidity conditions will bring down market interest rates even without a direct policy rate cut.</p>.<p>Therefore, market participants expect the RBI to start easing liquidity via lowering the CRR, setting the stage for rate cuts from early 2025.</p>.PM's entire focus not on reducing inflation but on data manipulation, propaganda: Congress.<p>They are also not ruling out liquidity infusion through long-term repurchase auctions, dollar/rupee swaps and debt purchases.</p>.<p><strong>Context</strong></p>.<p>India's economy grew a weaker-than-expected 5.4% in July-September due to weaker expansions in manufacturing and consumption, data showed on Friday.</p>.<p>And while the growth rate hit a seven-quarter low, inflation was above the central bank's comfort range at 6.2% in October.</p>.<p><strong>Market reaction</strong></p>.<p>Overnight index swap rates -- the closest gauge of interest rate expectations -- have slumped in response to the GDP data.</p>.<p>The one-year OIS rate was at 6.30%, down 21 basis points from Nov. 28, while the five-year rate was at 5.99%, down 18 bps.</p>.<p>Bond yields also eased, with the 10-year benchmark bond yield down 8 basis points to 6.72%.</p>.<p><strong>Key quote</strong></p>.<p>"There has been a build-up in momentum related to pricing in of a rate cut in the upcoming policy due to a lower-than-expected GDP growth," said Alok Sharma, head of treasury at ICBC.</p>.<p>"We expect RBI to cut the CRR by 50 bps. That would address the tight liquidity and prep up the market for a 25 bps cut in February 2025."</p>