Indian federal bond prices inched lower on Friday as investors turned more cautious ahead of a key central bank policy review, though expectations are still for at least a 25 basis point cut in interest rates. The Reserve Bank of India reviews its policy stance on Monday with markets also expecting a potential cut in the cash reserve ratio, or the money lenders must park with the central bank.
However, some of the expectations for more aggressive rate cuts were left in doubt after the central bank governor said inflation cannot be controlled without sacrificing growth in the near-term. His comments followed data on Thursday that showed accelerating inflation in May, although the growth in core inflation remained below t h e key threshold of 5 percent. The RBI decision will follow Greek elections on Sunday, making for a potentially volatile session on Monday.
The 10-year benchmark bond yield closed at 8.34 percent, up 1 basis point on the day but down 2 basis points on the week, marking the seventh straight week of falling yields. Total volumes on the central bank's electronic trading platform were at a 180.80 billion rupees. Bond yields have fallen 31 basis points since the last week of April, and are down 18 bps since the fourth quarter economic growth data released on May 31 fell to a nine-year low.
India's one-year OIS rate closed 3 basis point higher at 7.54 percent while the five-year rate closed steady at 7.16 percent. The new 10-year paper, which will soon be the benchmark, rose 1 b ps on the day and could rise to around 8.25 percent, if the RBI stays pat, according to traders.