Indian federal bond yields were little changed on Friday with traders reluctant to build large positions ahead of the Reserve Bank of India's policy review on Tuesday. The 10-year benchmark bond yield ended at 8.18 percent, up 1 basis point from Thursday's close of 8.17 percent, after moving in a 8.12 to 8.19 percent band.
Total volumes on the central bank's electronic trading platform was at 203.15 billion rupees ($4.03 billion) compared with 90 billion-100 billion rupees usually dealt in a day. The RBI will not cut interest rates on Tuesday, although it is nearly unanimously expected to do so by the end of June, a Reuters poll of 22 economists showed.
"I am not in the camp that RBI will be signalling a easing policy through CRR at this point in time, because you just have one month of about 7.5 percent inflation number," said Ramit Bhasin, managing director and head of markets at RBS. "You need to have a couple of months of inflation at that level, at which point of time, the RBI should be in a position to give relief to the market."
Cash reserve ratio is the proportion of deposit lenders have to maintain with the central bank, and currently stands at 6 percent. India's wholesale price index (WPI), the main inflation gauge, rose 7.47 percent from a year earlier, slowing from a 9.11 percent rise in November. "Because the market is not pricing in a cut, if we were to get a rate cut, it would be bullish both for bonds and equity markets," Bhasin said.
The benchmark five-year swap rate ended at 7.26 percent from 7.22 percent previously and the one-year swap rate settled at 8.01 percent from 8.02 percent. "What happened in OIS was basically driven by offshore accounts. They realised there is going to be no rate cut and liquidity, on an overnight basis, is extremely tight." The one-year swap has gained 17 basis points this week.