* India's benchmark BSE index up 0.01 pct
* New 10-yr bond yield down 2 bps; rupee muted
* GDP data showed lower-than-expected 6.1 growth y/y
* But markets expect better GDP; RBI to still hold rates
MUMBAI, June 1 India's shares were flat, while
bonds gained slightly despite data showing weaker-than-expected
economic growth, with investors still betting the economy will
This reaction followed data out late on Wednesday showing
India was no longer the world's fastest-growing major economy
after posting gross domestic product (GDP) growth of 6.1 percent
in January-March from a year earlier, well below expectations
for 7.1 percent and China's 6.9 percent annual expansion in the
Analysts expect the Reserve Bank of India (RBI) to hold its
policy repo rate at 6.25 percent on June 7 and
issue a less hawkish statement than at its last meeting.
The change in tone is expected given recent data showing
consumer inflation easing to 2.99 percent in April
- well below its target of 4 percent - though markets are still
braced for a potential surprise.
Meanwhile, economic growth in the last quarter was seen
likely to have been hit by the government ban on
high-denomination banknotes imposed in November.
The economy is, however, still expected to post stronger
economic growth going forward, a view that spurred Indian shares
to record highs last month.
"Markets expects the next quarter to be very good," said
Vinod Nair, Head of Research at Geojit Financial Services.
"It will be a big surprise if RBI cuts rates now," he added.
"RBI will take some more time as they are also concerned about
inflation and how much further the note-ban impact will
India's benchmark BSE index was up 0.01 percent at
0623 GMT, but the broader NSE index was down 0.04
percent, with both still near record highs hit on Wednesday.
Meanwhile, the yield on the newly issued 10-year bond
was down 2 basis points to 6.64 percent from its
previous close, while the benchmark five-year overnight indexed
swap was down 4 basis points to 6.51 percent.
The Indian rupee was at 64.45 to the dollar
compared with its 64.50 close.
Investors will likey stay cautious ahead of the RBI meeting,
without adding significant positions given that outcomes of the
RBI's policy meetings since it adopted a six-member monetary
policy committee format in October have surprised investors.
"Markets would like to believe that the RBI will soften its
tone and hint at a rate cut in its August policy meeting," said
a senior treasury dealer at a foreign bank.
"But given that markets have been proven wrong the last
three times, no one is confident to go the whole hog and buy
especially with just one week to go for the monetary policy
(Reporting by Suvashree Dey Choudhury and Krishna V Kurup;
Editing by Eric Meijer)