It seems that the apex bank of India RBI is now done with easing, swaps the market show. RBI is the most aggressive bank amongst t all the asian banks in slashing the borrowing costs in 2019.
Recently RBI shocked the market by not changing the rates this time, when it has already cut the price five times this year. On December 6, one year interest rate swaps raised 27 basis points to a four month high of 5.29%. As per the DBS bank ltd, the swaps are showing a pause which had price 25-40 basis points before the policy decision.
“The market is a bit taken aback by the RBI’s shock hold and that’s getting reflected in the swaps pricing-out any more rate cuts,” said Eugene Leow, a fixed-income strategist in DBS Bank in Singapore. “Market participants are now focusing on inflationary pressures and fiscal slippage.”
After the inflation forecast raised by the Reserve Bank of India, the yield on the benchmark bonds jumped by 20 basis points. As per the Bloomberg survey, the consumer price index rose around 5.26% in November which was 4.6% gain in October.
As per ICICI Securities Primary Dealership Ltd, volatile oil prices and higher U.S. Treasury yields will weigh on Indian bonds. The absence of bond purchases by the RBI and speculation that the authority may be selling short-end bonds has also dented sentiment.
“Every incremental news coming in is bond-negative,” said Naveen Singh, head of fixed-income trading at in Mumbai at ICICI Securities. “Either we are in a very long pause, or over a period of time if we see any green shoots, the market may even start to price in the possibility of rate hikes in the second half of 2020.”