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Business News/ Opinion / Online-views/  Bond yields up as inflation seen higher
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Bond yields up as inflation seen higher

Bond yields up as inflation seen higher

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Reuters

Mumbai: Indian federal bond yields rose toward one-year highs as investors pared positions on talk that inflation at the end of May could be sharply higher than expected.

Tight cash conditions ahead of advance tax payments by corporates and high oil prices also weighed on sentiment.

In early morning trades, the benchmark 10-year bond yield was at 8.36%, four basis points above the close on 12 June when it had hit a one-year high of 8.39% during trade after a 25 basis point rise in repo rate this week.

“Inflation will be a major factor today. If it goes beyond 8.5% as feared, definitely there will be selling and the 10-year yield could inch towards 8.40," a dealer with a state-owned bank said.

The inflation data is due by noon.

The wholesale price index is forecast to have risen to 8.28% in the 12 months to May 31, up from 8.24% in the previous week, its largest rise since August 2004, a Reuters poll showed.

Analysts say inflation would have breached 9% in early June, pushed up by an increase in government-set prices of petrol, diesel and cooking gas last week.

A Reuters poll of 13 economists after this week’s rate hike showed that more tightening could be in store in coming months.

Seven out of 13 economists polled on Thursday saw the repo rate, which is the central bank’s key lending rate, rising another 25 basis points to 8.25% by the end of December.

Twelve expected the cash reserve ratio, the percentage of deposits that banks have to keep with the central bank, to go up again by the end of the fiscal year in March.

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Published: 13 Jun 2008, 11:03 AM IST
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