Difficult To See Past RBI

Bonds are likely to tread water today ahead of the RBI rate announcement tomorrow. The RBI are expected to keep policy settings unchanged at the August meeting amid concerns over growth and a potential third Covid wave. All 21 economists surveyed by Bloomberg expect the MPC to leave the benchmark repurchase rate unchanged. While the RBI is widely expected to announce another tranche of its so-called government securities acquisition program, bond traders will be watching for any cues on return to policy normalisation especially with inflation running above the RBI's target band.

• The bond market remains a concern for the RBI, there have been several recent auctions the Central Bank has devolved on dealers due to unacceptably high yields. The RBI will likely extend the GSAP programme, markets will scrutinise the announcement for any signs of policy normalisation or liquidity withdrawal.
• Elsewhere, data on Wednesday showed services PMI rose to 45.4 from 41.2, but remained in contractionary territory. Composite PMI rose to 49.2 from 43.1. Commenting on the latest survey results, Pollyanna De Lima, Economics Associate Director at IHS Markit, said: "It's encouraging to see the Indian manufacturing industry recover from the blip seen in June. Output rose at a robust pace, with over one-third of companies noting a monthly expansion in production, amid a rebound in new business and the easing of some local COVID-19 restrictions. Should the pandemic continue to recede, we expect a 9.7% annual increase in industrial production for calendar year 2021"
• Keep an eye on equity markets today, sentiment is neutral in Asia today but Indian equity markets climbed to fresh highs yesterday as mortgage lender HDFC gained for a fourth day and SBI jumped after strong earnings. Despite the rise to record levels for the index, on the whole earnings have been weak; of the 34 Nifty companies that have reported to so far only 21 have beaten estimates.