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RBI Minutes More Hawkish Than Expected

INDIA

Bonds could decline today as markets assess the latest set of RBI minutes which had a more hawkish than expected tilt. Goldman Sachs said "the minutes of the August 6 RBI policy meeting suggest MPC members prioritized supporting the nascent growth recovery as the possibility of a third Covid wave looms, given that cost-push inflation has moderated recently after the upside surprise in May. However, one MPC member objected to "maintaining an ultra-low reverse repo rate" and voted against the accommodative stance, apprehensive that "inflationary expectations will be disanchored". As policy trade-offs between growth and inflation become evident, the RBI will likely continue with measured liquidity withdrawal until the October policy meeting."

  • On Friday the RBI sold INR 260bn of bonds at auction, though yields were above cut offs which indicated weak bidding and put pressure on the space through the rest of the session on Friday.
  • Markets await the RBI's conversion operation today, the Bank will convert a total of INR 100bn from five bonds maturing in 2022 and 2023 into securities due 2031 and 2035.
  • Elsewhere Indian PM Modi said that the government will lay out a plan today to raise funds from the sale of state infrastructure assets over a four year period in order to help minimize the budget deficit.

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