Bond yields hit 1-month high as RBI’s inflation worries dent sentiment

Bond yields hit 1-month high as RBI's inflation worries dent sentiment

On the day, yields fluctuated within a narrow range. (representative)


Indian government bond yields ended higher today, with benchmark bond yields at one-month highs, as traders assessed the impact of the Reserve Bank of India’s (RBI) comments on inflation.

The yield on the benchmark 10-year Treasury note settled at 7.3164%, the highest level since Nov. 21, after closing at 7.2867% on Wednesday.

“Policymakers are concerned about inflation, which means more rate hikes are on the horizon,” said Debendra Kumar Dash, senior vice-president of treasury at AU Small Finance Bank.

“However, a large part of the market also believes that the central bank is at the end of the rate hike cycle. So the reaction to the minutes has been somewhat muted.”

The Reserve Bank of India raised its key policy rate by 35 basis points (bps) to 6.25% in December, the fifth consecutive hike. India’s headline retail inflation rate fell to 5.88% in November, but core inflation remained above 6%.

“Prematurely pausing monetary policy action at this juncture would be a costly policy mistake,” central bank Governor Shaktikanta Das said in the minutes of the central bank’s meeting.

Yields traded in a tight range on the day as most traders stayed on the sidelines ahead of quarter-end.

Most market participants expect benchmark yields to remain in a tight range through the end of December amid low trading volume and a lack of fresh cues.

“Ahead of the budget, I see yields moving in a 7.25%-7.35% range. While the focus remains on inflation, growth concerns will also start to weigh on sentiment, which should limit any sharp upside in yields,” Dash added.

Meanwhile, Arun Bansal, executive director and head of finance at IDBI Bank, believes that the policy repo rate may rise to 6.75% in 2023.

“The RBI will have to watch out for a depreciating rupee and narrowing interest rate differentials with the US, with a 60% chance of an increase in the terminal repo rate to 6.75%.”

(Reporting by Bhakti Tambe and Dharamraj Dhutia; Editing by Janane Venkatraman)

(Aside from the title, this story is unedited by NDTV staff and published via a syndicated feed.)

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