MUMBAI: Indian government bond yields eased in early session on Wednesday, as weaker-than-expected growth may force the central bank to rethink its monetary policy tightening stance.

The 10-year benchmark 7.26% 2032 bond yield was at 7.4458% as of 10:10 a.m. IST, after closing higher at 7.4623% on Tuesday.

The yield rose 12 basis points (bps) in February, the biggest monthly rise since September.

“There is some buying from banks, as (the) market seems to be in an oversold zone and growth data has further led the market to believe the central bank will have to take note of weak growth while formulating monetary policy,” a trader with a state-run bank said.

Economic growth slowed further in the December quarter as pent up demand eased and weakness in the manufacturing sector continued.

Asia’s third-largest economy recorded year-on-year growth of 4.4% in October-December, down from 6.3% in July-September, and also below a Reuters forecast of 4.6%.

The government, however, retained its growth forecast of 7% for 2022/23, while revising growth for the previous year to 9.1% from the earlier 8.7%.

Most brokerages expect the Reserve Bank of India (RBI) to hike rates once more in April, followed by a prolonged pause.

The RBI has raised the repo rate by 250 bps in the current financial year to 6.50%. The divergence between weaker manufacturing and stronger services activity might complicate the calibration of monetary policy, Citi said.

“The RBI will be cognizant of risk from sticky core inflation and would have to hike (the) repo rate by 25 bps in April.”

India bond yields seen little changed ahead of $4bn state debt sale

Meanwhile, traders await the first auction of Treasury Bills, due later in the day, after the government raised the quantum for March. New Delhi will raise 390 billion rupees ($4.73 billion) though the sale of 91-day, 182-day and 364-day bills.