10-year bond yield falls after RBI policy, rupee closes higher against US dollar

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Mumbai: Government bond yields extended their losses on Thursday after the Reserve Bank of India (RBI) maintained a neutral policy stance in its recent review, which assuaged concerns of a near-term rate hike.

Yield on India’s benchmark 10-year government bond closed at 7.468%, compared to its previous close of 7.530%. Bond yields and prices move in opposite directions.

RBI on Wednesday left its policy rates unchanged at 6% and maintained its policy stance to neutral despite fiscal slippages for FY18, higher international crude oil prices and sell-off globally due to fear of hike by the US Federal Reserve.

“Although the policy outcome has been largely on expected lines, the degree of hawkishness in the policy has provided the markets a breather,” said Edelweiss Securities in a note to its investors.

RBI projected an inflation range of 5.1-5.6% in the first half of 2018-19 on the back of higher international crude oil and raw material prices. However, RBI eased the inflation forecast to 4.5-4.6% for the second half of FY18 on the back of softness in food inflation assuming normal monsoon.

Five members of the monetary policy committee (MPC) panel voted to keep rates unchanged, while Michael Patra, executive director at the central bank, wanted to raise rates by 25 basis points. A basis point is one-hundredth of a percentage point.

“Overall, the policy is supportive of growth with inflation trajectory expected to taper off over the second half providing a stable environment for growth. Further policy action will be based on inflation and growth trajectory over the next few months,” said Shanti Ekambaram, president – consumer banking, Kotak Mahindra Bank.

Traders will keep an eye on key Consumer Price Index and Index of Industrial Production data for January and December, respectively, on 12 February.

The Indian rupee pared all the morning losses and closed marginally higher against the US dollar after local equity markets jumped over 300 points. The home currency ended at 64.26 a dollar, up 0.05% from its previous close of 64.29. The currency opened at 64.38 and touched a high and a low of 64.15 and 64.39, respectively.

The benchmark Sensex index rose 1% to 34,413.16 points. So far this year, it has risen 1%.

So far this year, the rupee has weakened 0.6%, while foreign investors bought $1.99 billion in equities and $2.14 billion in debt market.livemint