Indian bond yields seen easing as inflation below 6%, sticky core limits gains

MUMBAI: Indian government bond yields were expected to open lower on Tuesday after domestic inflation for November eased within the central bank’s target range for the first time in 2022, opening up the possibility of a moderation in rate hikes by the RBI.

The benchmark 10-year yield was likely to move in a 7.21%-7.26% band, a trader with a private bank said.

The yield ended at 7.2938% on Monday, after having risen by 10 basis points in previous six sessions.

India’s annual retail inflation rose 5.88% in November from 6.77% in the previous month, surprising analysts who had predicted the reading at 6.40%.

“There should be a gap-down opening, as hardly anyone was expecting inflation to come under 6%, and it has happened earlier than expected,” the trader said.

Core inflation, however, was between 6% and 6.26% in November, according to three economists’ estimates, versus 5.9% to 6.3% in October.

Economists expect core numbers to remain sticky in the coming months as price pressures continue in health, education, clothing and personal care, among other sectors.

Indian bond yields seen steady ahead of Nov inflation data

Traders said sticky core inflation could curb a major fall in yields.

Meanwhile, annual industrial output contracted 4% in October, its weakest performance in 26 months, after revised growth of 3.5% in September.

Analysts polled by Reuters had expected expansion of 0.3%.

Traders now await US inflation data due later in the day and the Federal Reserve policy decision on Wednesday.

The Fed is expected to hike its interest rate by 50 basis points, after raising the same by 375 bps since March.