The political decision of the Reserve Bank has come and gone, without really changing much for the local bond market that is dealing with its worst losses since 2013.
The central bank kept interest rates unchanged changes, made a small adjustment to its inflation forecast and did not really commit to anything in the liquidity management front. This is meant to change the focus of investors towards the government's fiscal policies, given that the concern about the deterioration of public finances has also contributed to the ruin.
"For bond markets, especially bonds, the key is to see the news around fiscal policy and commodity prices," said Vivek Rajpal, Singapore's rate strategist at Nomura Holdings Inc. RBI was "neutral," he said, adding that since the comments were less tough than market expectations, it is "not likely to trigger any additional sales."
The bonds reversed losses after the result of the policy, with the reference yield to 10 years, dropping two basic points to 7.04 percent. The yield, which rose one basic point before the decision, has risen 52 basis points this year.
The RBI policy may have been made, but the risks of fiscal slippage and, consequently, higher indebtedness in the market are still valid. Therefore, as far as bond monitors are concerned, the ball is now in the government court.
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