India bond yields end lower in run-up to RBI policy decision

MUMBAI, June 3 (Reuters) – Indian government bond yields declined on Tuesday, as traders added positions especially in the 10-year part of the yield curve, ahead of the central bank’s monetary policy decision later this week.

The yield on the new benchmark 10-year bond ended at 6.2022%, compared with the previous close of 6.2144%. The liquid five-year bond yield ended at 5.8520%, further steepening the yield curve.

The Reserve Bank of India is widely expected to cut interest rates by 25 basis points for the third consecutive time on Friday.

The central bank has lowered policy rates by 50 basis points in 2025 and has infused $100 billion into the banking system in the December-May period.

The State Bank of India believes that the RBI must cut rates by 50 bps to revive the credit cycle.

“The RBI’s accommodative stance is likely to continue, with a 25 basis point repo rate cut anticipated at the June policy meeting and expectations for the repo rate to settle at 5.50% for the remainder of the financial year, further supporting growth and investment,” Laukik Bagwe, fund manager and head of fixed income at ITI Mutual Fund, said.

India’s economy surged 7.4% in the January-to-March period, much faster than a forecast of 6.7% in a Reuters poll, and up from the 6.4% expansion in October-December.

Meanwhile, retail inflation for April slipped to 3.16% and is projected to stay below 4% for most of 2025. The market anticipates a reduction in inflation forecast for the current year.

The overnight index swap (OIS) rates ended a tad lower, but have been failing to break below the key support level since the last few sessions.

The one-year OIS rate was nearly 2 basis points lower at 5.55%, while the two-year and the most liquid five-year OIS rates were also down 2 basis points at 5.43% and 5.64%, respectively. (Reporting by Dharamraj Dhutia Editing by Eileen Soreng)