MUMBAI: Bond market is interpreting RBI’s pause in hike to be a ‘longer pause’ with no more hikes in next meetings. This is despite RBI Governor Shaktikanta Das stressing that this pause was ‘for this meeting’ only.
The yield movements in the bond market due to the RBI’s decision to pause reflects the optimism of market participants. A day before the Monetary Policy Meeting, 10-year bond yields were hovering near 7.30 per cent as most of the market participants were expecting 25 bps hike. When it didn’t happen, yields plunged to the intraday low of 7.14 per cent and closed at 7.21 per cent.
“The general optimistic view in the bond market is that this is a longer pause just for the reason that rates and inflation are well under control,” Ankit Gupta, founder, BondsIndia.com told this newspaper. “There is an optimism that in spite of the market was expecting a 25 bps rate hike and it didn’t happen so somewhere the central bank is looking for financial stability and growth to be balanced along with taming inflation. So, this might be a longer pause and we may not see hikes in next coming meetings,” Gupta added.
Market participants believe the RBI had the chance to hike rate this time when the inflation is at current level, why would it raise it going forward when most of the economists expect the inflation to fall in the coming months.
“If the RBI was keen to hike rates, it would have hiked this time only. RBI is unlikely to hike rates in near future. Unless inflation surprises in a negative way, the bond market would be trying to build in a situation of no rate hike immediately,” Sandeep Bagla, Chief Executive Officer, Trust Mutual Fund.