Bond yield eases 5 bps after RBI changes stance to 'neutral'

Bonds

Indian bond yields, especially on 10-year bond, eased around 5 basis points (bps) after the Reserve Bank of India (RBI) on October 9 changed its monetary policy stance to "neutral".

At 10.51 am, the 10-year benchmark was trading at 6.7534 percent against 6.7947 percent at the open and 6.807 percent at the close on the previous trading session.

One basis point is one-hundredth of a percentage point.

"Bond yields remain positive, driven by continuous FII inflows and favorable demand-supply dynamics, with 10-year yields expected to reach 6.60 percent by fiscal year-end, supported by rate cut expectations," said V. Ramachandra Reddy, Head Treasury, The Karur Vysya Bank.

The RBI’s monetary policy committee (MPC) by a 5:1 majority decided to keep the policy repo rate unchanged at 6.50 percent for a tenth time. The rate-setting panel unanimously decided to change the stance to “neutral” and remain unambiguously focused on a durable alignment of inflation with the target, while supporting growth, RBI governor Shaktikanta Das said.

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The bond yield also got comfort from the cut in inflation projections by the central bank.

The RBI cut inflation projections for the second quarter of the current financial year to 4.1 percent against 4.4 percent projected in the August policy.

Similarly, the central bank cut Q4FY25 CPI inflation to 4.2 percent from 4.3 percent in August.

Das said CPI print for the month of September is expected to see a big jump due to unfavourable base effects and a pick-up in food price momentum, caused by the lingering effects of a shortfall in the production of onion, potato and channa dal (gram) in 2023-24, among other factors.