India's 10-year bond yield may fall to 6.6% if RBI eases in Feb, ICICI Bank's Prasanna says
2024-12-11
Category: economic

Indian government bond yields may trend in a narrow range in the near term, but the benchmark bond yield could ease to levels seen three years ago if the central bank cuts interest rates in its next policy meeting, the treasurer at ICICI Bank said.
"I expect 10-year benchmark bond to trade in the 6.70%-6.80% range in the near future. Going into the next year, if there is a potential rate cut in February, then we can see the 10-year yield reaching 6.60%," B Prasanna, head of treasury at the private lender, said.
Prasanna expects a shallow monetary easing cycle of 50 basis points, with a 25-basis-point reduction in February, and a similar one in April or June. 
India's 10-year benchmark bond yield (IN067934G=CC) was at 6.71% on Wednesday, off last week's low of 6.65%. It was last at 6.60% in January 2022. 
Earlier this month, the Reserve Bank of India (RBI) held interest rates but infused liquidity through a reduction in banks' cash reserve ratio. 
Sanjay Malhotra, a career civil servant, takes charge as the governor of India's central bank on Wednesday, which has led traders to ramp up rate cut bets. 
Prasanna said the RBI will be prepared to conduct more actions to infuse durable liquidity into the banking system as liquidity could tighten because of a rise in currency in circulation and the possibility of foreign exchange outflows. 
"They (RBI) might have to use core liquidity tools like FX buy-sell swaps and open market bond purchases apart from long-term repos," he said.
"I am sure they will look at evolving liquidity scenario and new measures including OMO (open market operations) purchases would be announced as and when required."
India's banking system liquidity surplus in December has shrunk by 60% from the previous month to around 560 billion rupees ($6.60 billion).
($1 = 84.8420 Indian rupees)