As an attempt to accelerate inflation, the central banks in Australia and India increased rates by 50bp. The Reserve Bank of Australia has increased its official cash rate to 0.85%. It has actually exceeded the market expectations which should be a 25bp rise. Based on the market expectation, a 25bp matched May’s quarter-point rise from a record low 0.1%. This is the first OCR increase since November 2010.
Meanwhile, the Reserve Bank of India has raised the repo rate by 50bp to 4.9%. Economists had expected the rise of 40bp. This is actually the same as the hike implemented in May along with the 50bp increase in the ratio on cash reserve reaching 5.5%. Comparing both countries, the Reserve Bank of Australia is more aggressive. They prompted a bond sell-off, meanwhile, the Indian bonds yielded a more relieved rally.
Following the rise, ACGBs fell, especially in the short end along with the two-year and three year yields. The jump occurred from 14bp and 15bp on the day to 3% and 3.26%. This is a five-year and 10-year yield that rises from 12bp and 8bp to 3.4% and 3.55% respectively. However, India’s 10-year government bond yield eased by 10bp to 7.45% after the announcement, said IFR Asia.
The overall yields of government securities covered 10bp-15bp at the end of the curve. Plus, it is 5bp-8bp in the end of the curve, A head of fixed income at Tata Mutual Fund, Murthy Nagarajan reported it. So, the yields on AAA rated Indian corporate bonds eased around 5bp, added DCM bankers. Currently, the RBI monetary policy is more aggressive. They even move beyond the increase of front-loading of interest rates. This is what Abheek Barua, the chief economist at HDFC Bank has said.
