Indian Bonds and Stocks Rise on Central Bank Cash Injection
Indian financial markets responded positively to the Reserve Bank of India's (RBI) liquidity infusion plan, fueling hopes of an early interest rate cut.
Liquidity Boost
On Monday, the RBI announced a $18 billion liquidity injection to address the current cash crunch, which is at its worst in over a decade. This move is seen as a step towards easing monetary policy and promoting economic growth.
Market Reaction
Indian bonds gained, with the yield on the 10-year bond falling one basis point. Stocks also rose, led by lenders such as ICICI Bank Ltd. and HDFC Bank, which surged over 2% each.
Analyst Views
Global banks such as Goldman Sachs, Standard Chartered, Citigroup, and Barclays now predict interest rate cuts in the RBI's February 7 policy meeting. Goldman Sachs expects a quarter-point cut in February followed by another in April.
Future Measures
The RBI plans to utilize the three liquidity management tools employed on Monday on an ongoing basis. The authority considers the cash reserve ratio a policy instrument rather than solely a liquidity tool.
Outlook
Additional liquidity measures may be forthcoming if the RBI deems the current deficit unsustainable for policy transmission. The market remains optimistic about further gains in Indian bonds due to the easing monetary policy expectations.