India short bond yields dip as RBI's liquidity infusion plan aids sentiment

Indian benchmark bond yield ended little changed on Monday, while shorter-duration bond yield declined, as the central bank's longer-term liquidity infusion plan and dovish commentary aided sentiment. 

The benchmark 10-year yield ended at 6.7036 per cent, compared with its previous close of 6.7065 per cent. 

The members of the rate-setting monetary policy committee said in the minutes of February meeting that India's inflation is seen aligning with the target of 4 per cent, which opens up space for monetary policy to address concerns on the growth front. 

The Reserve Bank of India cut the repo rate for the first time in nearly five years at this meeting, and the commentary in the minutes has opened up space for another rate action in April, according to market participants.   

 

"Given unanimity in views at the committee about lacklustre growth despite recent revival, and signs of more conviction about food inflation that has been a key headwind, the case for a follow up rate action from RBI MPC in April meeting remains very strong," ICICI Securities Primary Dealership said in a note. 

The RBI will conduct a three-year dollar/rupee buy/sell swap auction on February 28, which will lead to a liquidity infusion of around Rs 87,000 crore ($10.03 billion). 

India's shorter-duration government bond yields fell, after the swap announcement which will shore up rupee liquidity for up to three years. 

Since mid-January, the RBI has infused more than Rs 3.6 trillion into the banking system, including through Rs 1 trillion of open market operations and Rs 38,800 crore through secondary market bond purchases. 

The RBI has also infused around Rs 44,000 crore through a six-month dollar-rupee swap, and injected Rs 1.83 trillion via long-term repos as part of the package. 

Meanwhile, US bond yields eased as weak economic data raised bets that the Federal Reserve may cut rates twice in 2025.     

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