Mumbai: Indian federal bond yields rose to their highest in more than two weeks on Tuesday, 11 March, as record oil prices spurred inflation worries and on expectations corporate tax payments would cut the funds available to buy debt.
At 10:03am, the 10-year bond yield was at 7.63%, against Monday’s close of 7.61%. It rose to 7.64% in early deals, the highest since 25 February, according to Reuters data.
“I think the RBI (Reserve Bank of India) will be in a wait-and-watch mode now as inflationary expectations are rising,” a dealer with a private sector bank said.
“The liquidity conditions are also a little hazy because of the tax payments,” he said.
Corporates are expected to make advance tax payments of about Rs450 billion ($11.1 billion) by mid-March. The payments normally see cash conditions tighten.
JP Morgan economists said overnight rates could rise markedly in the second half of March because of the tax payments, although an increase in government spending before the end of the financial year should help ease the tightness.
US light crude for April delivery hit a record high above $108 a barrel on Monday. India imports about 70% of its oil and high crude prices could pressure the government to raise state-set fuel prices.
India’s inflation rate hit 5% in late February for the first time in nine months, the level at which the central bank wanted to contain inflation near by the end of March.
The central bank has kept its key lending rate unchanged at 7.75% for the last 11 months, after raising it five times between June 2006 and March 2007.