Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Markets / Stock Markets/  Bond yield surges most in two months
BackBack

Bond yield surges most in two months

The Reserve Bank of India (RBI) today kept policy rates unchanged at 5.15% as inflation breached its medium-term target

The 10-year bond yield rose 12 basis points, its biggest jump since 20 SeptemberPremium
The 10-year bond yield rose 12 basis points, its biggest jump since 20 September

Yield on the 10-year government bond on Thursday surged 15 basis points, its maximum gains in two months, as analysts believe future rate cuts hinge on softer inflation data.

The 10-year bond yield rose 15 basis points, its biggest jump since 20 September, to 6.613% compared with its previous close of 6.467%.

In a move that stumped the markets, the Reserve Bank of India (RBI) on Thursday kept policy rates unchanged at 5.15% as inflation breached its medium-term target. This was contrary to the result of a Mint survey, wherein eight of 10 bankers and economists expected a 25 basis points cut. RBI has cut policy rates by 135 basis points so far in 2019.

Aditi Nayar, principal economist of ICRA, expects the RBI to next cut rate only there is clear visibility that headline inflation will fall below 4%.

RBI revised its inflation forecast for the second half of the current fiscal to 4.7-5.1% from 3.5-3.7%. This comes after consumer price inflation quickened to 4.62% in October, breaching the 4% target for the first time since July 2018. The central bank’s rate-setting committee noted that inflation is expected to moderate below target by the second quarter of fiscal 2020-21 and that it would wait for data for more clarity on inflation outlook.

"On inflation, we see upside risks to the RBI’s near-term projections, especially if vegetable price inflation continues to build and the sudden rise in telecom prices are reflected in the CPI. Therefore, considering the near-term inflation spike and a potential fiscal slip in the Union Budget, we continue to project another pause at the February policy meeting", said Sonal Varma, economist at Nomura Research.

RBI also sharply reduced its growth forecast for 2019-20 to 5% from 6.1%, with the committee noting that a delay in revival of domestic demand, further slowdown in global economic activity and geo-political tensions could pose downside risks to growth. India’s economy grew at 4.5% in July-September, the weakest pace in more than 6 years.

"We believe that recent inflation prints have taken precedence over the growth concerns. In fact, seemingly, the RBI is pushing the onus of growth support to the government. Further, the RBI wants to wait-and-watch the effect of government’s measures and RBI’s past rate cuts", said Kotak Institutional Equities in a note to its investors.

Brokerage firm Kotak Institutional Equities said outlook on inflation and growth is unlikely to change significantly and hence rate cut and its timing will depend on the evolution of growth-inflation dynamics in fiscal 2021.

Going forward, there could be more pressure on gilts given the concern over widening fiscal deficit, supply pressure. Globally, investors would keep a watch on the US Federal Reserve policy decisions and developments around US-China trade deal.

Meanwhile, the rupee strengthened 0.34% to close at a one-month high of 71.29 a dollar. The currency opened at 71.49 and touched a high and a low of 71.30 and 71.66 respectively.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 05 Dec 2019, 04:32 PM IST
Next Story footLogo
Recommended For You
GENIE RECOMMENDS

Get the best recommendations on Stocks, Mutual Funds and more based on your Risk profile!

Let’s get started
Switch to the Mint app for fast and personalized news - Get App