Mumbai: The yields on Indian bonds due 2022 climbed before data that showed consumer prices accelerated, limiting the central bank’s room to cut interest rates.
Consumer prices rose 9.87% in June, official data showed after trading hours, versus 9.31% in May. The inflation rate, which quickened more than the 9.3% gain forecast in a Bloomberg survey, has stayed close to 10% for more than a year. Reserve Bank of India governor D. Subbarao left the repurchase rate unchanged at 7.25% at its policy meeting on 17 June, citing inflation risks.
There was some nervousness ahead of the inflation data, Harish Agarwal, a bonds dealer with FirstRand Bank in Mumbai. The overall sentiment in the bond market is very cautious as rate-cut expectations have fallen sharply.
The yield on the 8.15% notes due June 2022 jumped five basis points, or 0.05 percentage point, to 7.65% in Mumbai, according to the central bank’s trading system. The rate climbed 18 basis points last month, the most since the securities were issued in June 2012.
Wholesale-prices, which are more frequently used for policy decisions, also probably quickened to 4.88% in June, a Bloomberg survey shows before data due 15 July, after a 4.7% increase in May that was the smallest in 43 months.
It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth, the RBI said at last month’s policy meeting. The next review is on 30 July.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose four basis points to 7.55%, data compiled by Bloomberg show. BLOOMBERG