Mumbai: Indian federal bond yields surged to fresh seven-highs on Friday after newspapers said annual inflation would have topped 11.6% on 21 June, higher than market expectations for 11.44%.
Dealers said an expected squeeze in cash availability due to a Rs100 billion ($2.3 billion) bond auction and increase in banks’ reserve requirement also hurt sentiment.
At 10:20am, the yield on the 10-year bond was at 8.9%, its highest since late October 2001. It ended at 8.81% on Thursday.
“With oil prices hitting record highs everyday, there is little hope of inflation softening anytime soon,” a dealer with a private sector bank said.
The dealer also said 10-year yield could touch 9.1% in the near term.
US oil was trading above $145 a barrel, after hitting an all-time high of $145.85 on Thursday.
Oil is India’s biggest import and dealers said high global prices could prompt the government to raise state-set prices of petrol, diesel, kerosene and cooking gas.
Petroleum Secretary M.S. Srinivasan said on Thursday the government was expected to review domestic fuel pricing in October.
Finance Minister Palaniappan Chidambaram said last week that inflation would stay in double digits for some weeks.
The central bank will sell Rs60 billion of the benchmark 10-year bond and Rs40 billion of bonds maturing 2032 later in the day.
Last week, the RBI said the cash reserve ratio (CRR), the proportion of deposits that banks must set aside, would be raised by 50 basis points in two stages of 25 basis points each.
The first stage of the increase kicks on Saturday and would drain about Rs80 billion. The second phase takes effect on 19 July.