In­dia’s cen­tral bank may be done with in­ter­est rate cuts, swap mar­kets show

Muscat Daily - - BUSINESS -

Mum­bai, In­dia - In­dia’s cen­tral bank, the most ag­gres­sive among its Asian peers in slash­ing bor­row­ing costs in 2019, may be done with eas­ing, swap mar­kets show.

One-year in­ter­est-rate swaps surged 27 ba­sis points to a four­month high of 5.29 per cent on De­cem­ber 6 af­ter the Re­serve Bank of In­dia (RBI) shocked the mar­ket by keep­ing rates un­changed af­ter cut­ting five times this year. Swaps, which were pric­ing in 25-40 ba­sis points of re­duc­tions be­fore the pol­icy de­ci­sion, are sig­nal­ing a pause, ac­cord­ing to DBS Bank Ltd.

“The mar­ket is a bit taken aback by the RBI’s shock hold and that’s get­ting re­flected in the swaps pric­ing-out any more rate cuts,” said Eu­gene Leow, a fixed-in­come strate­gist in DBS Bank in Sin­ga­pore. “Mar­ket par­tic­i­pants are now fo­cus­ing on in­fla­tion­ary pres­sures and fis­cal slip­page.”

The yield on ten-year bonds surged 20 ba­sis points over Thurs­day and Fri­day af­ter the RBI raised its in­fla­tion fore­cast. It rose 4 ba­sis points to 6.71 per cent on Tues­day, while the oneyear in­ter­est-rate swaps surged to 5.30 per cent.

Con­sumer price in­dex prob­a­bly rose 5.26 per cent in Novem­ber from a 4.6 per cent gain in Oc­to­ber, ac­cord­ing to a Bloomberg sur­vey be­fore data due on Thurs­day.

Be­sides van­ish­ing rate-cut sup­port, volatile oil prices and higher US Trea­sury yields will weigh on In­dian bonds, ac­cord­ing to ICICI Se­cu­ri­ties Pri­mary Deal­er­ship Ltd. The ab­sence of bond pur­chases by the RBI and spec­u­la­tion that the au­thor­ity may be sell­ing short-end bonds has also dented sen­ti­ment.

“Ev­ery in­cre­men­tal news com­ing in is bond-neg­a­tive,” said Naveen Singh, head of fixed-in­come trad­ing at in Mum­bai at ICICI Se­cu­ri­ties. “Ei­ther we are in a very long pause, or over a pe­riod of time if we see any green shoots, the mar­ket may even start to price in the pos­si­bil­ity of rate hikes in the sec­ond half of 2020.”

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