Mumbai: Indian bond yields rose towards 10-month high on Thursday after the Reserve Bank of India (RBI) governor said there was a need to exit an expansionary policy stance but added there was no clear timeframe for that to happen.
The yield on the 10-year benchmark bond ended at the day’s high of 7.43%, above Wednesday’s close of 7.34%. Last week, the yield rose to 7.50%, its highest since November.
Volumes were a heavy Rs55.75 billion ($1.1 billion) on the central bank’s trading platform.
RBI governor Duvvuri Subbarao said while an exit from expansionary policy was needed, a balanced approach was necessary and the timing of a move was uncertain.
“Hikes are imminent and the market is broadly veering down to the start of January to begin the hiking cycle,” said Vineet Malik, head of interest rates at HSBC India.
“Steady state of policy rates would be a 5-7% corridor, I would think,” he added.
The central bank cut its main lending rate by 425 basis points to 4.75% between October and March, and also reduced banks’ cash reserve requirements by 400 basis points.
Data on Thursday showed the wholesale price index (WPI) fell 0.12% in the year to 29 August, a 13th consecutive weekly fall, although the food articles sub-index rose 14.8% as a poor monsoon pushed up food prices.
There was little direction for the market from the central bank’s auction to buy back bonds. The central bank bought back Rs42.97 billion out of an indicated amount of up to Rs60 billion.
The central bank will sell Rs110 billion of government at auction on Friday, part of the government’s record Rs4.51 trillion market borrowing for 2009-10.
The benchmark five-year interest rate swap ended at 6.55/60%, from previous close of 6.41/46.