Rate cut bets rise post new RBI chief appointment, nudge bond yields down

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Indian government bond yields ended lower on Tuesday as a change in guard at the Reserve Bank of India is seen aiding monetary policy easing in 2025. 

The benchmark 10-year yield ended at 6.7073 per cent, compared with its previous close of 6.7175 per cent. 

India appointed Sanjay Malhotra as its new RBI governor on Monday in a surprise move. Malhotra, currently revenue secretary to the finance ministry, has worked in financial services, power, taxation and the information technology sectors over a three-decade-long career. 

Malhotra's appointment comes as economic growth has slowed and inflation has risen, with outgoing RBI governor Shaktikanta Das saying that restoring a balance between inflation and growth in India remains an important task for the RBI. 

Economists at Capital Economics said they expect a 25-basis point cut in India's repo rate at Malhotra's first monetary policy meeting in February, compared to an earlier estimate of April under Das. 

Citi, Nomura and Standard Chartered Bank also expect a 25-bps reduction in February. 

"The rates market will closely watch the newly appointed RBI governor's stance on growth-inflation dynamics. Although the rates market is pricing in a rate-cutting cycle, signals from Malhotra could impact market pricing of the pace and depth of the easing cycle," Standard Chartered Bank analysts said in a note. 

Meanwhile, Nomura is eyeing the possibility of a bigger 50 bps catch-up move upfront - though it will likely be data-driven, and the base case for now remains a 25 bps cut. 

The US 10-year Treasury yield stayed around the 4.20 per cent mark in Asian hours, with rising bets of a 25 bps rate cut from the Federal Reserve next week. 

The odds of a reduction are at 86 per cent, compared to 62 per cent last week. The Fed, which has already cut rates by 75 bps since September, will announce its decision on Dec. 18.   

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