Bonds drop most in two months on RBI's surprise rate pause

By Kartik Goyal

India’s sovereign bonds declined the most in more than two months and stocks erased gains after the central bank unexpectedly kept interest rates unchanged.

The yield on benchmark 10-year bonds rose ten basis points to 6.56 per cent, while the rupee ticked lower to 71.57 per dollar. The S&P BSE Sensex was little changed after wiping off an intraday gain of 0.4 per cent as the central bank also cut its forecast for economic growth.

The rate pause “signals that RBI’s appetite for easing has nearly sapped as the aggressive easing earlier in the year bore no fruits,” said Prakash Sakpal, an economist at ING Groep NV economist in Singapore.

The policy rate was left at 5.15 per cent, the Reserve Bank of India said in a statement on Thursday. None of the 43 economists surveyed by Bloomberg predicted the move, with all expecting a cut. The central bank so far delivered 135 basis points of easing in five moves this year in a bid to revive the economy.