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RBI Policy Looms: Indian Bonds Edge Higher Amidst Oil Woes
4 Aug
Summary
- Indian government bonds saw a slight increase before the RBI policy announcement.
- Rising oil prices limited the upward movement in bond yields.
- Traders await RBI guidance on liquidity and economic forecast revisions.
Indian government bonds exhibited a slight upward trend on Tuesday, driven by traders anticipating the Reserve Bank of India's upcoming policy decision. The benchmark 6.94% 2036 bond concluded trading with a marginally lower yield.
Despite this positive movement in bonds, surging oil prices, which rose over 2% in Asian trade, acted as a constraint on further yield declines. Traders will be closely observing the RBI's announcement for insights into liquidity conditions and any adjustments to the central bank's economic projections.
The Reserve Bank of India is widely expected to maintain its key policy rate unchanged at its scheduled meeting. This cautious approach is partly influenced by the need for more definitive inflation data and the ongoing Foreign Currency Non-Resident (FCNR) deposit swap period.
India's liquidity surplus has recently expanded, reaching its highest point in approximately 12 weeks, supported by FCNR(B) inflows and government expenditures. This increased liquidity has led banks to invest in short-term debt instruments, pushing down yields on certain state debt notes at weekly auctions. However, geopolitical tensions impacting oil prices introduced an element of caution to the market sentiment.
