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The Indian government bonds continued to trade lower Friday ahead of 150 billion government debt auction and the U.S. employment report.
The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 2 basis points to 6.82 percent, the super-long 30-year Treasury yield jumped 2-1/2 basis points to 7.13 percent and the short-term 2-year note yield also climbed 2-1/2 basis points to 6.58 percent by 05:30 GMT.
Markets now look ahead to the United States September employment report on Friday, which we expect will maintain support for further tightening before year-end (most likely now at the December FOMC meeting).
Reserve Bank of India's two-day monetary policy review meeting saw newly appointed monetary policy committee (MPC), headed by new governor Urjit Patel announce a rate cut by 25 bps. All six of the monetary policy committee unanimously voted in favour of the rate cut.
The RBI cut the short-term lending rate by 25 basis points to 6.25 percent from 6.50 percent earlier and maintained that it would continue with its accommodative monetary stance with the objective of achieving consumer price index (CPI) inflation target of 5 percent.
The Reserve Bank of India said that the growth momentum in the economy would continue and that the seasonal surge in sensitive food times like pulses, fruits and vegetables may have peaked in July, considerably improving its near-term inflation outlook.
"Subdued momentum in food inflation in Q3 and the usual seasonal softening of food prices in early Q4, notwithstanding a reversal of base effects in March 2017, improves the near-term outlook for inflation considerably,” the RBI said in its report.
RBI expect inflation to ease to 4.7 percent by Q4 of 2016-17 and to 4.4 percent by Q2 of 2017-18, both within the Reserve Bank’s inflation target band. The forecasters 5 years ahead inflation expectations remained unchanged at 5 per cent, while 10 years ahead moved down to 4.5 per cent from 4.8 per cent.
Meanwhile, the Sensex fell 0.17 percent or 44.66 points to 28,061 and Nifty-50 futures traded 0.22 percent lower or 19.20 points at 8,714 by 05:30 GMT.
