Markets Find Zen as RBI Governor Malhotra’s Dovish Tone Brings Relief to Bond Market

Image Source: The Economic Times

Indian financial markets responded positively today as bond yields and overnight index swap (OIS) rates declined, following dovish comments from Reserve Bank of India (RBI) Governor Sanjay Malhotra. His statement, published in an interview with Business Standard, indicated a more accommodative future monetary policy, soothing investors' fears over the interest rate trajectory.

Important Market Movements:

10-Year Benchmark Yield: Fell to 6.2622% from previous close of 6.2732%
5-Year 6.75% 2029 Bond Yield: Fell to 5.9362% from 5.9642%
1-Year OIS Rate: Fell 3 basis points to 5.49%
2-Year OIS Rate: Also fell by 3 bps to 5.48%
5-Year OIS Rate: Fell 4 bps to 5.69%

Governor Malhotra emphasized that inflation running below RBI’s projections could open up policy space, though he clarified that this “does not imply an immediate reversal in the policy cycle.” The RBI had earlier cut the repo rate by 50 basis points and shifted its stance from “accommodative” to “neutral.”

Market. participants viewed the remarks as a signal that still another rate cut may be planned later this financial year, especially if inflation stays low. Traders also noted that the remarks "made the bulls active," with support emerging along the bond curve.

Meanwhile, Brent crude oil prices dropped below $75 a barrel, giving further relief to India's inflation situation, given the country's heavy reliance on imported oil.

Sources: Economic Times, ET CFO, LiveMint