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MUMBAI, April 2 (Reuters) - Indian government bonds surged on Wednesday as investors welcomed the central bank's debt purchase plan for April, with the 10-year yield closing at a more than three-year low. The Reserve Bank of India on Tuesday said it will buy bonds worth 800 billion rupees ($9.3 billion) in four tranches of 200 billion rupees each.
The first purchase is due on Thursday. "The RBI surprised by announcing another Open Market Operations for April, signaling a strong preference for surplus liquidity to aid transmission. We look for a 25bp (basis points) cut in the repo rate to 6% along with a change in stance to accommodative at the April meeting," said Radhika Rao, executive director and senior economist at DBS Bank.
The benchmark 10-year bond yield ended at 6.4806%, compared with Friday's close of 6.5823%.
Yields move inversely to bond prices. This is the yield's lowest level since January 2022, and its biggest one-day drop since May 2023. India's banking system liquidity hit a four-month high on Tuesday, after remaining in a deficit since mid-December.
The surplus is likely to support market sentiment as it is required for effective monetary policy transmission and critical for boosting growth. The central bank's policy decision is due on April 9, with economists widely expecting a 25 bps cut, and the RBI is expected to meet participants on April 3 to discuss its liquidity management framework, which could be announced along with the policy. So far, the RBI has injected liquidity worth more than 5 trillion rupees into India's banking system from January to March.
Traders are now watching for U.S. President Donald Trump's reciprocal tariff announcement scheduled for 2000 GMT on Wednesday, which could intensify global trade tensions and impact foreign flows into emerging markets.
(Reporting by Dharamraj Dhutia and Khushi Malhotra; Editing by Varun H K).
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