Bond yields ease on inflation, rate cut view

Bond yields ease on inflation, rate cut view

Mumbai: The federal bond yields ended lower on Wednesday, on expectations of easing inflation and lower oil prices would provide the Reserve Bank of India (RBI) with more leeway to cut rates to bolster the slowing economy.

The benchmark 10-year bond yield ended at 5.61%, after trading in a 5.57-5.75% range during the day. It had closed at 5.74% on Tuesday.

The 10-year bond yield has fallen 146 basis points so far in December. The bond market is closed for Christmas on Thursday.

Volumes were a high Rs14,650 crore on the RBI’s trading platform.

India’s annual inflation is expected to have fallen to a fresh 9-month low of 6.57% in mid December, lower than 6.84% a week earlier, a Reuters poll of analysts showed on Wednesday.

Inflation data is due at around midday on Friday.

“If inflation comes in lower, there is a scope that yields may fall to 5.45-5.50% levels," Jigna Thakker, a dealer at Saraswat Co-operative Bank, said.

Oil fell towards US $37 a barrel on Wednesday. Lower fuel prices give RBI more elbow room to cut interest rates to support economic growth. Oil forms a major component in the India’s wholesale price index (WPI).

The government said on Tuesday there was considerable scope for monetary easing next year and there may be a need for more aggressive action, while a top economic adviser expected the RBI to cut its key rates by up to 100 basis points.