Mumbai: Indian bond yields ended off intraday lows on 2 February 2007 after inflation crossed 6 percent for the second time in a month, leaving traders uncertain of the central bank’s monetary moves in the near term.
India’s annual inflation stood at 6.11 percent for the week ended January 20, up from the previous week’s 5.95 percent, data released on Friday showed. It hit a two-year high of 6.12 percent at the start of January.
The yield on the benchmark 10-year bond ended at 7.70 percent, down from the previous close of 7.72 percent, but higher than the 7.67 percent quoted before the government released inflation data.
“Traders are wary about possible tightening by the central bank ahead of the April policy,” a trader at a private bank said.
The Reserve Bank of India (RBI) raised its short-term lending rate by an expected 25 basis points to 7.50 percent on Wednesday to rein in inflation. It left its borrowing rate unchanged at 6.0 percent.
RBI Governor Yaga Venugopal Reddy said on 2 February 2007 the central bank’s top priority is to bring inflation back into a 5.0-5.5 percent range. He said the RBI would use multiple monetary instruments in the present situation.
On Wednesday, the US Federal Reserve left interest rates unchanged and said price pressures were likely to moderate. The Fed’s decision helped yields to ease in early trade.