June 3, 2019 / 6:53 AM / 9 months ago

Indian markets rally, rate cut bets firm after weak GDP growth

MUMBAI (Reuters) - India’s benchmark 10-year bond yield dropped to a more than one-and-half-year low while shares and the rupee gained as a sharp decline in economic growth in the March quarter firmed expectations for at least a quarter-point rate cut on Thursday.

A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai, February 26, 2016. REUTERS/Shailesh Andrade/Files

India’s economy grew at its slowest pace in more than four years in the January-March period, lagging China’s growth pace for the first time in nearly two years, raising the chances the central bank will cut rates for a third straight meeting.

Asia’s third-largest economy grew at a much slower-than-expected 5.8% in the last quarter, compared with 6.4% in China, government data showed on Friday.

The continued drop in global crude oil prices amid concerns about a global slowdown as trade war tensions heat up, also aided market sentiment.

The benchmark 10-year bond yield was at 6.97% at 0641 GMT, after falling as much as 9 basis points to 6.94% versus Friday’s close, at which point it was at its lowest since Nov. 22, 2017.

“A 25-basis-point cut is the base case that the market is expecting. Now with the GDP figures, we are also looking at something more,” a senior trader at a private bank said, referring to a possible change in policy stance or a bigger rate cut.

Two-thirds of 66 economists predicted the Reserve Bank of India (RBI) would cut its repo rate by 25 basis points at its June 4-6 meeting, bringing it to 5.75% - the lowest since July 2010. It is then expected to keep policy on hold at least until the end of next year.

“There are a lot of mixed cues for India; the GDP data is making a strong case for a rate cut by the RBI,” said Siddhartha Khemka, head of retail research at Motilal Oswal Securities.

“Everyday there is a different news flow. Earnings season has ended and there is no volatility from that end; generally the trend this week looks positive.”

The broader NSE Nifty was up 0.571% at 11,991.10 while the benchmark BSE Sensex rose 0.58% to 39,946.35.

Many economists and officials expect the government to push long-pending reforms in the next parliamentary session, beginning on June 17, after its landslide election victory.

The partially convertible rupee was at 69.43/44 per dollar versus its Friday close of 69.7050.

Reporting by Swati Bhat; Editing by Jacqueline Wong

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