BackGilts gain as RBI flags higher core inflation
Official figures last week showed core CPI inflation increased to 5.73% in DecemberBalancing inflation and growth under a flexible inflation-targeting framework needed careful analysis of each category of data, RBI governor Shaktikanta Das
PremiumPrices of the 10-year government bond fell further on Monday after Reserve Bank of India governor Shaktikanta Das flagged concerns over higher core inflation. Rising crude oil prices and worries over a wider fiscal deficit also weighed on sentiment.
At 9.15 am, the yield on the most-traded 2028 gilt rose 4 basis points to 7.633% and the yield on government bonds due in January 2029 gained 5 basis points to 7.36%. Bond yields and prices move in opposite directions.
“While food inflation has turned negative since October 2018, and fuel inflation has been highly volatile, inflation excluding food and fuel remains sticky at close to 6%," Das said in a speech to investors attending the Vibrant Gujarat Summit on Friday.
Official figures last week showed core CPI inflation -- excluding food and fuel prices -- increased to 5.73% in December. Most sub-categories of core inflation recorded an increase. Medical services inflation soared to 9% in December from 7.2% in November; education services jumped to 8.4% from 6.6%; personal care items rose to 4.6% from 4.1%; household goods and services climbed to 6.4% from 5.8% and recreation services increased to 6% from 5.9%. Clothing inflation remained flat at 3.5%.
Such wide divergence across major inflation indicators posed challenges, Das said. Balancing inflation and growth under a flexible inflation-targeting framework needed careful analysis of each category of data, he added.
Analysts believe that the government is likely to overshoot its fiscal deficit target for 2018-19, largely owing to a shortfall in goods and services tax collections. Analysts are also concerned about a likely announcement of an income transfer scheme for farmers that could cause the government to miss its pre-announced deficit reduction in 2019-20.
Also, the continued rise in crude oil prices dampened sentiment. Brent crude has risen in 14 of 18 trading sessions and has gained over 22% during this period.
The benchmark Sensex index rose 0.22% to 36,467.12 points. Year to date, it has risen 0.7%.
So far this year, the rupee has declined 2.07%, while foreign investors have sold $283.50 million and $347.90 million in the equity and debt markets, respectively.
The rupee along with Asian currencies was trading lower over a lack of progress on a key US-China trade issue of intellectual property rights. The rupee weakened to 71.40 to a dollar, down 0.30% from its previous close. It opened at 71.34 and touched a low of 71.41 per dollar.
(Bloomberg contributed to this story)
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!
