Updates at market open

By Dharamraj Dhutia

MUMBAI, Oct 15 (Reuters) - Indian government bonds rose in early Wednesday trading ahead of the release of the minutes from the central bank's latest policy meeting, although gains were capped as the 10-year bond yield failed to convincingly break below 6.50%.

The yield on the benchmark 10-year note IN063335G=CC was at 6.4953% as of 10:00 a.m. IST, after closing at 6.5063% on Tuesday.

Bond yields move inversely to prices.

"The minutes may be the decisive factor for the break of the 6.50% level," a trader with a primary dealership said.

Earlier this month, the Reserve Bank of India maintained the status quo on interest rates, while stating that lower inflation opened up policy space for supporting growth.

The minutes of the meeting will be released after market hours, and will provide more cues into the RBI's policy path.

Most market participants are eyeing a rate cut in December, while Nomura, MUFG and Capital Economics expect the RBI to deliver one more cut in February.

India's retail inflation dropped to 1.54% in September, an eight-year low, as food prices eased, further raising bets for more easing.

State Bank of India expects retail inflation to average 2.2% this financial year, much lower than the 2.6% RBI forecast.

"We expect inflationary print to come around 0.45% next month, and that makes a strong case for decisive actions. Being the collective voice of myriad sections of markets and people at large, we believe the MPC too would listen to the tunes that are changing," the lender said.

RATES

India's overnight index swaps $(OIS)$ inched down in line with bond yields, as sentiment in swap market favours receiving lower.

The one-year OIS rate INR1YMIBROIS=CC was not yet traded, while the two-year rate INR2YMIBROIS=CC eased to 5.34%. The five-year rate INR5YMIBROIS=CC was down 1 basis points at 5.59%.

(Reporting by Dharamraj Dhutia; Editing by Sumana Nandy and Eileen Soreng)

((Dharamraj.dhutia@tr.com))