Indian bond yields continue to climb following the shift in the Reserve Bank of India's (RBI) stance. The market is adjusting to the RBI's new position.
Hangin' out in Mumbai: Investors wrestle with RBI's surprise moves on bond yields
In a surprising twist on Monday, Indian bond yields saw a spike during morning trade as the finance world grappled with the Reserve Bank of India's (RBI) recent shift in policy stance. The central bank, in a head-turning decision last week, moved from an accommodative stance to a neutral one, following a hefty rate cut.
By 10:00 a.m. IST, the 10-year yield ticked up to 6.2591%, compared to Friday's close of 6.2373%. The five-year 6.75% 2029 bond followed suit, climbing to 5.8344%, versus 5.8150% previously.
A trader at a private bank summed it up: "For today, caution's the word. But if the ceiling's broken, we might see a comeback soon."
The central bank's rate cut of 50 basis points (bp) on Friday was its steepest in five years, yet it signaled a halt to further easing with its policy stance change. RBI Governor Sanjay Malhotra emphasized the limited leeway the bank now has to aid growth with monetary policy.
Curious about what the future may hold for bond yields, economists turned to their crystal balls and crystal charts. The RBI likely won't make any further moves until the end of the current fiscal year, according to a poll by Reuters, following the rate cut.
However, Nomura's crystal ball sees a different story unfolding. They predict two more smaller reductions, totaling 25 bps, in October and December 2021, with growth and inflation figures expected to fall short of their marks.
As for those who like to read the leaves in their tea, they might be intrigued to know that the RBI often adjusts interest rates during its Monetary Policy Committee (MPC) meetings. However, concrete plans for rate adjustments in October and December 2021 remain elusive in the tea leaves of the provided research.
Sources:1. RBI interest rate hike in 20222. RBI rate cuts in 2025
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- The trader at the private bank mentioned that caution is needed due to the recent spike in bond yields, but if the yield ceiling is broken, a comeback might be imminent, highlighting the sensitive relationship between liquidity, debt, and growth in business and finance.
- Echoing the confusion in the finance industry, economists are employing crystal balls and charts to predict the future of bond yields, with some anticipating no further RBI moves until the end of the current fiscal year, while others see two more rate cuts by the end of 2021, underscoring the uncertainty surrounding inflation and debt.
- Interestingly, despite speculation about future RBI rate adjustments in October and December 2021, concrete plans remain unclear, much like the messages hidden within the tea leaves, denoting the mysterious and somewhat unpredictable nature of monetary policy decisions and their implications for business and finance.
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