India bonds seen consolidating in range at start of RBI policy week

By Dharamraj Dhutia

MUMBAI, June 1 (Reuters) – Indian government bonds are likely to open the week on a quiet note, as focus turns to the central bank’s Friday monetary policy decision, while ​crude oil prices and Treasury yields remain largely unchanged after ‌witnessing a decline last week.

Yield on the benchmark 6.48% 2035 note is expected to trade in the 6.97% to 7.02% range, a private bank trader said. It had ended at 7.0037% on Friday, down 6 basis points in its biggest weekly drop ‌in seven. ​Bond prices move inversely to yields.

“If we ⁠do not see any major ⁠moves in global factors, the action will be dominated by the expectations that get built up in the run up to the monetary policy,” the trader said.

Nearly 80% of economists in the May 22-29 ​Reuters poll expect the repo rate to remain unchanged at the Reserve Bank of India’s monetary policy decision on June 5, despite a ⁠rising clamour from some quarters for a ⁠rate hike. Standard Chartered, Capital Economics, ANZ, MUFG and ​OCBC are among the minority calling for an interest rate increase.

The central bank ​is also expected to update its inflation and growth forecasts ‌for the fiscal year ending March 2027, amid spillover impact from the war in the Middle East.

Though they gained last week, Indian government bonds have remained under selling pressure as a spike in crude oil prices and ⁠a weakening local currency raised the odds of an earlier-than-expected rate hike.

The Strait of Hormuz, which usually handles about a fifth of global oil and ⁠liquefied natural gas flows, ‌has remained largely shut since February 28, pushing up ⁠benchmark Brent crude price more than 30%. Elevated ​oil prices ‌impact India’s inflation and current account deficit, ultimately ​adding pressure on ⁠the central bank to hike interest rates.

RATES

India’s overnight index swap rates rose in May, amid fears of a change in the central bank’s stand on rates.

The one-year swap ended at 6.0950% and the two-year rate ended at 6.29%. The five-year rate closed at 6.6125% on Friday.

(Reporting by Dharamraj Dhutia; Editing ​by Ronojoy Mazumdar)