Indian bonds rally as RBI hints at possible rate cut
What's the story
Indian bonds rallied on Monday after Reserve Bank of India (RBI) Governor Sanjay Malhotra hinted at the possibility of an interest rate cut. In an interview with Zee Business, Malhotra said that recent data indicates there is room for a reduction in rates. The comments led to a decline in the benchmark 10-year bond yield by four basis points to 6.48%.
Policy outlook
Monetary Policy Committee's stance on rate cuts
Malhotra also pointed out that the Monetary Policy Committee had already indicated a possibility of easing policy in its October meeting. He said that the indicators since then, including inflation, have not changed that expectation. However, he clarified that it is up to the rate-setting panel to decide at its upcoming meeting early next month.
Currency fluctuation
RBI's stance on rupee depreciation
Commenting on the recent depreciation of the rupee, Malhotra said it is a natural consequence of the inflation gap with advanced economies. He said an annual decline of 3%-3.5% is normal for the currency and that RBI's focus is on curbing excessive volatility rather than defending any particular level. The rupee hit a fresh low of ₹89.46 against the dollar last week and has weakened by about 4% this year.