Indian markets rally, rate cut bets firm after weak GDP growth

Mumbai: India’s benchmark 10-year bond yield dropped to a more than one-and-half-year low while shares and the rupee gained as a sharp decline in economic growth in the March quarter firmed expectations for at least a quarter-point rate cut on Thursday.

India’s economy grew at its slowest pace in more than four years in the January-March period, lagging China’s growth pace for the first time in nearly two years, raising the chances the central bank will cut rates for a third straight meeting.

Asia’s third-largest economy grew at a much slower-than-expected 5.8 per cent in the last quarter, compared with 6.4 per cent in China, government data showed on Friday.

The continued drop in global crude oil prices amid concerns about a global slowdown as trade war tensions heat up, also aided market sentiment.

The benchmark 10-year bond yield was at 6.97 per cent at 0641 GMT, after falling as much as 9 basis points to 6.94 per cent versus Friday’s close, at which point it was at its lowest since Nov. 22, 2017.

“A 25-basis-point cut is the base case that the market is expecting. Now with the GDP figures, we are also looking at something more,” a senior trader at a private bank said, referring to a possible change in policy stance or a bigger rate cut.

Two-thirds of 66 economists predicted the Reserve Bank of India (RBI) would cut its repo rate by 25 basis points at its June 4-6 meeting, bringing it to 5.75 per cent - the lowest since July 2010. It is then expected to keep policy on hold at least until the end of next year.

“There are a lot of mixed cues for India; the GDP data is making a strong case for a rate cut by the RBI,” said Siddhartha Khemka, head of retail research at Motilal Oswal Securities.

“Everyday there is a different news flow. Earnings season has ended and there is no volatility from that end; generally the trend this week looks positive.”

The broader NSE Nifty was up 0.571 per cent at 11,991.10 while the benchmark BSE Sensex rose 0.58 per cent to 39,946.35.

Many economists and officials expect the government to push long-pending reforms in the next parliamentary session, beginning on June 17, after its landslide election victory.

The partially convertible rupee was at 69.43/44 per dollar versus its Friday close of 69.7050.