Mumbai: Indian federal bond yields inched up on Friday, 15 February, as expectations for a rate cut in the near term diminished following an increase in retail fuel prices.
Dealers said inflation was already trending higher and the move to increase fuel prices for the first time in 20 months would increase price pressure. At 9:50am, the 10-year federal bond yield was at 7.46%, one basis point higher than Thursday’s close.
A Reuters poll forecast on Thursday the wholesale price index to rise 4.21% in the 12 months to 2 February, which would be the highest since early August. It was 4.11% a week earlier.
“The focus has again turned to inflation and investors are factoring in that risk,” a dealer with a foreign bank said.
Although most analysts expect inflation to remain within the Reserve Bank of India’s comfort zone of 5% by the end of March, they believe the chances have diminished for a rate cut before the April policy review.
The apex bank kept its key lending rate at 7.75% in its last review in January, unchanged for 10 months.
Dealers said the market may take an auction of state bonds for nearly Rs78 billion ($2 billion) on Friday in its stride.
On Thursday, the RBI sold market stabilisation scheme bonds totalling Rs23.17 billion and on Wednesday it raised Rs40.43 billion via treasury bill auctions.