Mumbai: Indian federal bond yields rose on Thursday as higher oil prices raised the spectre of inflation while the availability of cash shrank, pushing up overnight rates.
The call money rate was at 10.40-10.50%, compared with Wednesday’s close of 10.10-10.20%. Traders said if the central bank intervened to support a wobbly rupee against the dollar, it could suck out rupees from the banking system.
Earlier this week, the central bank said it would continue to sell dollars through state banks to augment supply in the domestic foreign exchange market or intervene directly to meet any demand-supply gaps after the rupee hit its lowest in more than two years.
At 10:16 a.m, the 10-year benchmark bond yield was at 8.29%, compared with the previous close of 8.19%.
“Bond prices have dropped as more supplies are due in the second half and cash conditions are also tight,” a dealer with a mutual fund said.
The bond auction calendar for the second half of the 2008-09 financial year ending in March is expected to be announced by the end of the September and analysts expect heavy borrowings to bridge a widening fiscal deficit.
Oil was trading above $96 a barrel. India imports about 70% of its oil and higher prices put pressure on the government to raise state-controlled fuel prices, which in turn could push up inflation.
Weekly inflation is due at 6 p.m (IST). The wholesale price index is forecast to have risen 12.09% in the 12 months to 6 September, a tad below the previous week’s rise of 12.1%, a Reuters poll showed.