MUMBAI: Indian government bond yields are expected to be largely flat in early deals for the second straight session on Wednesday, as traders eye the local central bank’s monetary policy decision due later this week, following a recent slide fuelled by disappointing domestic growth data.

The benchmark 10-year yield is likely to move between 6.70% and 6.73%, a trader with a private bank said, compared with its previous close of 6.7121%.

“Most traders have already positioned themselves for the monetary policy decision, and hence we may not see any major directional move in long-term yields, but in the shorter end, bond prices could see some rally,” the trader said.

Bond yields slid on Friday and Monday after India’s economic growth slowed much more than expected, with gross domestic output in the world’s fifth-largest economy at a seven-quarter low of 5.4% last quarter.

Along with bond yields, overnight index swap rates-the closest indicator of interest rate expectations-are down by around 20 basis points after the growth data.

The Reserve Bank of India’s monetary policy decision is due this Friday and the decline in yields and swap rates signals that the central bank may move to loosen monetary policy via a lower cash reserve ratio (CRR) for banks.

Market participants have estimated that a cut in CRR by 50 basis points could release over 1.1 trillion rupees ($12.99 billion) into the banking system immediately, leading to a further decline in shorter-duration bond yields.

India bond yields to trend higher as US peers spike

ICICI Securities Primary Dealership has said that the central bank may cut the CRR in a staggered manner, with a 25 basis-point cut in the fortnight after the meeting, followed by another instalment in the subsequent fortnight.

Meanwhile, longer-dated US Treasury yields inched up slightly on Tuesday after labour market data showed an increasing number of unfilled jobs.