India bond yields end flat as all eyes on RBI's I-CRR review this week

Indian government bond yields ended little changed on Wednesday, with focus on the move in U.S. peers and the central bank's decision on a temporary liquidity absorption measure.The benchmark 7.26% 2033 bond yield ended at 7.2083% after closing the previous session at 7.2068%.

"All eyes are on what the Reserve Bank of India will do on I-CRR (incremental cash reserve ratio) this week, as it sets the cue for the upcoming policy action," said Anitha Rangan, an economist at Equirus Group.

"Given that system liquidity is still in good surplus, RBI could choose to maintain the I-CRR until the October policy." The RBI could ask lenders to continue maintaining additional cash reserves for two more fortnights, with some tweaks to the proportion, as it seeks to keep liquidity tight amid high inflation, Reuters reported earlier in the day, citing senior treasury officials.

The I-CRR could be reduced to 5%-8% in a phased manner from the current 10%, treasury officials have said.

Meanwhile, the U.S. yields rose on Tuesday after Federal Reserve Governor Christopher Waller said the latest economic data gave the central bank enough room to asses the need for raising interest rates again.

The 10-year U.S. yield hovered around the critical 4.25% level, after rising by 20 bps in last two days, while benchmark Brent crude contract rose above the crucial $90 per barrel mark on Tuesday, further hurting inflation outlook.

Market participants await local as well as U.S. inflation prints due next week. India's August inflation is expected to stay elevated after spiking to a 15-month high of 7.44% in July from 4.87% in June.

India's monetary policy committee will remain watchful of the evolving inflation situation, but the Reserve Bank of India expects the recent spike in vegetable prices to ebb going ahead, Governor Shaktikanta Das said on Tuesday.