MUMBAI, Dec 17 (Reuters) – Indian government bond yields rose on Tuesday, with the benchmark yield inching above the key 6.75% level, after the rupee fell to yet another record low and as investors braced for the Federal Reserve’s monetary policy meeting.
The 10-year yield ended at 6.7588%, compared with its previous close of 6.7430%.
“There is some caution ahead of the Fed decision tomorrow. Also, the constant decline in the local currency is hurting overall investor sentiment,” said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.
The Indian rupee fell to another lifetime low on Tuesday, ending at 84.8950 versus the U.S. dollar, amid worries over a widening of the domestic trade deficit to a record level in November.
While the Fed is widely expected to cut interest rates by 25 basis points (bps) on Wednesday, markets fear cautious commentary from the central bank and an uncertain rate cut outlook going into 2025.
The Fed is likely to signal it is in no rush to lower rates further as inflation remains above its 2% target and as the labour market remains resilient, analysts said.
The odds of a quarter-point cut this week are at over 97%, but the chances of a reduction in January are just around 17%, according to the CME FedWatch Tool.
In India, traders await the minutes of the central bank’s December monetary policy meeting. The minutes, which are due on Friday, could provide clarity on policymakers’ thinking about the domestic interest rate outlook.
The Reserve Bank of India (RBI) had held rates steady earlier this month while infusing liquidity into the banking system through a 50-bp cut in lenders’ cash reserve ratio. (Reporting by Dharamraj Dhutia Editing by Sonia Cheema)
