ALSO READIndia's 10-year bond yield at over 13-month high as inflation quickens India's bonds slump; RBI raises CPI forecasts, cuts SLR Bonds, Sensex rise as soft inflation stokes rate cut hopes Indian bond yields fall after RBI cancels open market sale of debt India bond market trading extended by 30 minutes on Tuesday: traders
By Suvashree Choudhury
MUMBAI (Reuters) - India's benchmark 10-year bonds gained on Wednesday after the central bank stuck to a more balanced tone on inflation and market liquidity, in a relief to investors who had braced for more hawkish comments.
Bond investors were further relieved after RBI Deputy Governor Viral Acharya said he expected "slightly surplus" liquidity by March, reducing some of their concerns that the central bank would continue with aggressive open market debt sales to drain out cash from the financial system.
"Market was fearful of a slightly more hawkish tone," he added. "So in a sense there is no fresh bad news which is a bit of a relief."
The benchmark 10-year bond yield ended at 7.03 percent, compared with around 7.07 percent right before the RBI decision came in. The yield had closed at 7.06 percent on Tuesday.
Meanwhile, the broader NSE index dropped 0.7 percent and the rupee weakened to 64.51 to the dollar from 64.38 on Tuesday.
The positive end in bond markets comes after a recent sell-off sent the 10-year bond yield up by more than 60 bps since the RBI last cut the repo rate by 25 bps in early August.
Bond markets have pummelled as an acceleration in inflation has sharply reduced the prospect of rate cuts, while worries mount that the government would borrow more from debt markets as it struggles to meet its annual fiscal deficit target.
The RBI also contributed to the sell-off by selling 900 billion rupees ($13.95 billion) via open market operations since July to drain out excess cash accumulated after India's shock move to ban higher-value bills late last year as well as the central bank's foreign exchange market interventions.
($1 = 64.5200 Indian rupees)
(Editing by Subhranshu Sahu)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)