By Dharamraj Dhutia
MUMBAI (Reuters) – Indian government bond yields plunged on Thursday, after the Reserve Bank of India, in an unexpected move, kept policy rates unchanged, against wide expectations of a seventh consecutive rate hike.
The 10-year benchmark 7.26% 2032 bond yield was at 7.1987% as of 10:35 a.m. IST, after closing at 7.2750% on Wednesday. The yield fell to 7.1469% after the decision, against 7.2857% before that.
The liquid five-year 7.38% 2027 bond yield crashed as much as 16 bps to 7.01% after the policy decision.
The RBI said it held its key repo rate steady on Thursday as risks to growth have risen following the recent global financial turmoil, after having raised it at each of its six previous meetings.
Most analysts had expected the central bank to deliver one final hike of 25 basis points in the current tightening cycle, which has seen it raise the repo rate by a total of 250 bps since May last year.
“The move has taken most by surprise, and there is panic short covering which led to aggressive move in yields,” a trader with a primary dealership said.
Bonds yields were, however, off their multi-month lows, after the central bank governor Shaktikanta Das clarified that the central bank stood ready to act against inflation if conditions warranted, and the decision to pause was “for this meeting only”, signalling further rate hikes were still possible.
India’s retail inflation rose 6.44% year-on-year in February and has remained above the central bank’s mandated target band of 2%-6% for 10 out of the last 12 readings.
Traders also await the first government debt auction of the current financial year.
The government will raise 330 billion rupees ($4.03 billion) through the sale of bonds later in the day, which includes a new five-year bond as well as 7.26% 2033 bond that will replace the existing benchmark note soon.
($1 = 81.9650 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee)
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