Mumbai: The government 10-year bond yield jumped 8 basis points after the Reserve Bank of India (RBI) increased its repo rate by 25 basis points. However, soon it erased all the gains and was trading little changed. Earlier, the 10-year bond yield rose to 7.85% from its Tuesday’s close of 7.773%. At 2.45pm, it was trading at 7.761%, below its previous close.

Bond yields and prices move in opposite directions.

One basis point is one-hundredth of a percentage point.

The RBI raised policy rates by 25 basis points to 6.5% on account of inflationary pressures arising due to a hike in minimum support prices (MSPs) for crops. Earlier in its June meeting, the central bank had hiked the rate by 25 basis points to 6.25%.

Of the 15 economists surveyed by Mint, 12 expected RBI to raise its repo rate, the rate at which it lends to commercial banks, to 6.5%. Only three economists expected the RBI to keep rates unchanged at 6.25%.

The RBI’s rate move is the second in eight weeks and follows emerging-market counterparts in Indonesia, the Philippines and elsewhere who are trying to counter currency routs triggered by higher U.S. rates and a stronger dollar.

The central bank also raised the average inflation projection for the second half of the year to 4.8% from 4.7% in June. The central bank expects inflation to edge higher to 5% in the first quarter of the next fiscal year.

The Sensex fell 0.4% or 148.90 points to 37,457.68. Since January, it has gained 10.42%.

The rupee was trading at 68.58 to a dollar, down 0.05% from its previous close of 68.55. The currency opened at 68.59 to a dollar.

Bloomberg contributed this story.

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