The bond market hardly reacted on the announcement of industrial production data for the month of July 2012. Bond dealers said the market is not expecting any action from the Reserve Bank of India (RBI) in the mid-quarter monetary policy review scheduled on Monday.
Data on Index of Industrial Production (IIP) showed rise of 0.1% in July as compared to same period last year. The yields on the 10-year benchmark government bond edged up 2 bps to 8.20% from its previous close of 8.18%. "The IIP data was a non-event. Markets are not discounting any rate cut from RBI unless the government takes steps on fuel prices and fiscal consolidation," said a bond dealer with a primary dealership firm.
Traders said that the movement in yields was due to expectation of improvement in global risk appetite. There are hopes that the German court ruling will be in support of the European bailout plan that will prevent further damage in the Eurozone.
"The IIP data is too erratic. Anyway, 0.1% growth is as good as no growth at all," said the head of treasury at a leading private sector bank. The official added that it is time for the central bank to go for another round of rate cut looking at the dismal growth but chances are that government inaction on fuel prices may defer the rate cut again. The industrial production in April-July 2012 period shows negative growth of 0.1% as compared to same period a year ago. IIP growth was at 3.7% in July 2011 and 6.1% in the April-July period last year.
The RBI has held policy rates unchanged in the last two policy reviews in June and July. The central bank had surprisingly slashed policy rate by 50bps in the Annual Monetary and Credit Policy in April 2012. RBI Governor D Subbarao had said that the front loading was necessary and was entailed with expectation of some action from the government side which did not happen.
