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Indian bond yields ease on rate cut hopes as manufacturing inflation dips
March 14, 2012 / 11:58 AM / 6 years ago

Indian bond yields ease on rate cut hopes as manufacturing inflation dips

* Manufacturing inflation slowing gives rate cut room -
    * 10-year yield seen at 8.15-8.20 pct if repo rate cut -
I-Sec PD
    * Total traded volume above last eight-session average

 (Adds quotes, details, updates to close)	
    By Neha Arora	
    MUMBAI, March 14 (Reuters) - Indian federal bond
yields eased on Wednesday after manufacturing inflation slowed,
giving rise to expectation that the Reserve Bank of India may
cut the repo rate when it reviews  monetary policy on Thursday.	
    The 10-year benchmark bond yield settled 4
basis points lower at 8.28 percent, after falling to an intraday
low of 8.25 percent.	
    "I think more and more market participants are moving
towards a rate cut expectation," said Sandeep Bagla, senior
vice-president at ICICI Securities Primary Dealership Ltd.	
    The 10-year yield may fall to 8.15-8.20 percent if the RBI
cuts the repo rate, he said. 	
    Inflation in manufacturing products, which comprises about
65 percent of the overall wholesale price index basket, slowed
to 5.75 percent in February, from 6.49 percent in the earlier
    "The decline in manufacturing inflation rate does give room
for the RBI to ease rates," said Sonal Varma, economist at
    India's main gauge of inflation edged up to 6.95
percent in February from a year earlier. 	
    Earlier, a Reuters poll of 20 analysts had showed the RBI
will likely leave its key repo rate unchanged at
8.50 percent.    	
    The underlying fear in the market is that of likely higher
federal government borrowing in the new fiscal year starting in
April, dealers said.	
    New Delhi's fiscal slippages in the ongoing year, and likely
expansionary policy next year too, because of a recent
electoral-drubbing may force the government to announce a
populist budget, involving higher spending, which may in turn
stomp up their market borrowing.     	
    For the Reserve Bank of India, 2012 is shaping up as another
year of damage control for a populist government's excesses
rather than pursuit of its own priorities of boosting investment
and containing inflation. 	
    The other risk factor to bonds stem from higher global oil
prices, which were around $125 a barrel, marginally below an
11-month high touched on Tuesday. 	
    The total traded volume in the secondary market was 150.10
billion rupees ($3 billion), above 90.90 billion rupees on
Tuesday, and the last eight session average of 92.6 billion
    The benchmark five-year swap rate settled 1
basis point higher at 7.49 percent, while the one-year rate
eased 3 basis points to 8.04 percent.	
 (Editing by Subhadip Sircar)

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