Indian government bond yields rose in August, owing to expectations of an increase in inflationary pressure and high auction cut-offs. The large government bond supply and lacklustre progress on the monsoon also weighed on investor sentiment. Headline inflation, as measured by the Wholesale Price Index, was -0.95% for the week ended 28 August, compared with -1.54% for the week ended 31 July. However, an increase in global commodity prices and a weak monsoon resulted in higher food prices and thereby led to expectations of higher inflationary pressure. The yield on the 10-year 6.9% government bond maturing in 2019 rose to 7.09% in August, from 6.78% in the previous month. The yields on corporate bonds also jumped, tracking the rise in gilt yields. Call rates remained stable and continued to trade in the 3.25-3.50% range on stable liquidity conditions, during the month.
In the foreign exchange market, the rupee depreciated against the dollar to 48.65 as on 28 August, from 47.93 on 31 July, with foreign exchange reserves amounting to $272 billion as of 21 August.
Also See The Monsoon Effect (Graphics)
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