Bombay:
Treasury bond yields ended Friday higher for the second straight session as the focus shifted back to inflation, while a new 10-year bond delivered higher-than-expected yields, pointing to weak demand.
Market participants are now awaiting the minutes of the Reserve Bank of India’s latest policy meeting, to be published later on Friday, and will provide further clarity on the central bank’s stance on the interest rate path.
The benchmark yield on ten-year government bonds ended at 7.2639%, an increase of two basis points. Yields rose 6 basis points on Thursday to end at 7.2421%. However, the yield was lower for the fifth week in a row.
“The monetary policy committee can continue to hike rates until real interest rates are projected to be positive in the medium term, which could happen quite soon,” said Kunal Sodhani, vice president of the global trade center at Shinhan Bank.
The RBI sold 130 billion rupees ($1.63 billion) of a new 10-year bond with a cutoff yield of 7.26%, against a forecast of 7.23%, according to a Reuters poll of traders. The note fell in discount during its trading debut, but ended up at 100.05 rupees, yielding 7.2529 %.
On Thursday, the RBI said inflation may still require a monetary policy response as it remained above target range despite easing in recent months.
“Inflation has fallen, but its continued high level warrants appropriate policy responses to anchor expectations for the future,” the central bank said in an article on the state of the economy published in its monthly bulletin.
Indian retail inflation fell to 6.71% in July, declining for the third straight month, and missed the print forecast of 6.78% by economists in a Reuters poll. However, the RBI expects inflation to average 6.7% this fiscal year.
Earlier this month, the RBI’s monetary policy committee raised the bank’s key lending rate by 50 bps to 5.40%, the third hike in four months to curb rising price pressures. The RBI has raised the repo rate by 140 basis points since May.