MUMBAI: Indian government bonds fell sharply on the last day of the month after better-than-expected economic growth data cast doubts on whether the central bank will deliver a rate cut next week.
The benchmark 10-year yield ended at 6.5463% on Friday, up from 6.5082% in the previous session. Bond yields move inversely to prices.
The 10-year bond yield rose slightly month-on-month.
Record low inflation and recent dovish commentary by the Reserve Bank of India chief had boosted expectations of a rate cut in recent days, but a stronger growth print means that policy easing could be delayed.
India’s economy grew 8.2% year-on-year in July-September, accelerating from the 7.8% in the previous quarter, driven by strong consumer spending and manufacturing.
A Reuters poll had forecast a 7.3% expansion for the period when the U.S. imposed an additional 25% punitive tariff on Indian exports, raising the total levy to 50%.
Meanwhile, some remain hopeful that the RBI would still go ahead with a rate cut at its December policy meeting.
“The single-digit nominal GDP growth continues to signal tepid underlying activity. Despite the high real GDP growth, we retain our expectations of a 25bp of rate cut in the upcoming policy as inflation trajectory remains benign,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank said.
The RBI policy decision is due on December 5, and a majority of economists polled by Reuters expect a rate cut.
RATES
India’s overnight index swap rates rose as stronger growth data reduced the possibility of an immediate rate cut.
The one-year OIS ended at 5.46%, while the two-year swap closed at 5.47%. The five-year rate settled at 5.76%.