Indian federal bond yields and OIS rates spiked on Friday, ending up for a third consecutive session, as hopes the central bank would cut interest rates in September were dashed by better-than-expected April-June quarter growth data. India's economy grew 5.5 percent in the previous quarter. That was near its slowest in three years, but the expansion was slightly better than expected, signalling the worst may be over for Asia's third largest economy.
Analysts said the Reserve Bank of India was now likely to keep interest rates on hold after officials have repeatedly warned about inflationary pressures and expressed willingness to stomach slower near-term growth. "Life goes on. Liquidity is slowly improving, so money will find its way into bonds. However, we could see some further selling in bonds next week," said Anoop Verma, an associate vice president with Development Credit Bank, predicting a 8.22 to 8.28 percent range on the 10-year bond for next week.
The benchmark 10-year bond yield rose 5 basis points to 8.24 percent, ending up 3 basis points for the week. However, bonds ended flat for the month. Total volume on the central bank's electronic trading platform was at a moderate 162.7 billion rupees ($2.9 billion). The benchmark five-year swap rate rose 5 basis points to 7.17 percent, and ended up 3 bps for the week.
The one-year rate rose 5 bps to 7.81 percent, ending up 1 bp for the week. Bonds had rallied at the start of the week on expectations April-June growth would fall below 5 percent, which could have added pressure on the central bank to cut interest rates. With no major domestic economic data in the week ahead, traders said they would monitor the global risk environment, especially after the speech from Federal Reserve Chairman Ben Bernanke later in the day.
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