Indian bonds clock first weekly rise in five on dovish RBI, easing crude

Synopsis

Indian government bonds finished the week with little change on Friday, yet celebrated their first gain in five weeks. A decline in oil prices and a calming tone from the central bank helped elevate demand for these bonds. The Reserve Bank of India opted to keep its repo rate steady, alleviating concerns over potential rate hikes in the near future.

Indian government bonds ended little changed on Friday, but posted their first weekly rise in five weeks, as a fall in oil prices and dovish central bank commentary boosted market appetite.

The Reserve Bank of India kept the repo rate ‌unchanged on Wednesday, ⁠but cut ⁠its headline and core inflation forecast for the year, while promising sufficient liquidity for the banking system, allying concerns for a near-term rate hike.

RBI could be watching how core inflation evolves, rather than relying on forecasts given history of past undershooting and would consider policy changes only when this metric jumps to close ⁠to 4% ‌inflation target, ICICI Securities Primary Dealership said in a note.

"Strictly, ​going by this interpretation, RBI is hinting ⁠it is not inclined to hike in this fiscal ​year at all."

The yield on India's benchmark ​6.94% 2036 bond ended at 6.7651% against 6.7666% previous close. For the week, the yield fell 7 bps.

Oil prices slipped for second straight week on rising hopes of a diplomatic solution in the U.S.-Iran war, which could help to restore supply ‌in the Middle East. Brent was around $82 per barrel, down 9% for the week after dropping 7% ​last week.

India ​is the world's ⁠third-largest importer and consumer of oil, and the direction of crude prices has a direct impact on import bill, inflation and the currency.

RATES

India's ​overnight index swap rates rose on Friday, but posted their biggest decline in over two months.

The one-year swap ended at 5.77%, the two-year closed at 5.94%, and the most liquid five-year swap settled at 6.26%.

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