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Sovereign bonds slid after Reserve Bank of India Governor Shaktikanta Das said further rate cuts will depend on incoming economic data, forcing traders to dial back expectations of large easing in monetary policy.
The RBI’s switch to an accommodative stance in June in itself amounts to a 25-basis-point cut, on top of the 75 basis points of cuts since February, said Das.
The benchmark 10-year bond yield jumped seven basis points to 6.43 per cent, halting a three-week rally that sent yields to the lowest in more than two years after the government promised fiscal restraint and proposed to shift a part of its borrowing overseas. The central bank’s next policy review is due on August 7.
“The Governor’s comments are perhaps less dovish than what the market wanted to hear,” said Eugene Leow, a fixed income strategist with DBS Bank in Singapore. “Das’s comments are probably modestly negative, given that the govvies look overbought in the short term,” he said.
Sentiment was also dented by comments from Rathin Roy, a member of the Prime Minister’s Economic Advisory Council, who said the country is facing a silent fiscal crisis owing to a shortfall in tax revenue, and the government’s annual Budget suggests it may have grossly underestimated the problem.
Interest rate swaps rose, with the one-year overnight indexed swap rising 6 basis points to 5.47 per cent.
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