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MUMBAI: Indian government bond yields were largely unchanged in early trading on Wednesday, as markets await another round of aggressive monetary policy tightening and commentary from the US Federal Reserve.

The benchmark Indian 10-year government bond yield was at 7.2601% as of 04230 GMT, after ending at 7.2645% on Tuesday.

It has risen for last five straight sessions, jumping 18 basis points in that period.

“We are unlikely to see any major moves today as the market has already positioned itself for the Fed decision,” a trader with a private bank said. “If they are extra hawkish, then there could be another round of selloff.”

The benchmark 10-year US Treasury yield jumped to its highest level since 2011 on Tuesday and hit 3.60%. The two-year yield, which typically reflects interest rate expectations, was trading close to a 15-year high.

The Fed’s policy decision will be announced later in the day, with markets pricing in an 18% probability of a 100-basis-points (bps) hike.

Bond yields dip as strong tax collections aid sentiment; Fed meet eyed

The Fed has already hiked rates by 225 basis points since March, include 75 bps move in previous two policies.

The Fed’s policy meet outcome will be followed by the Reserve Bank of India’s decision due on Sept. 30, with many market participants expecting a 50 bps rate hike to control stubbornly high inflation that has remained above the central bank’s upper tolerance band for eight months.

The central bank raised interest rates by a total of 140 basis points between May and August, with economists now talking about the possibility of terminal repo rate being over 6%.

However, the Indian government is in no hurry to push inflation back to the central bank’s 4% medium-term target, for fear that aggressive rate hikes could hurt economic growth, two sources with direct knowledge of the matter said.

Surging prices are poised to trigger for the first time a legally mandated central bank report to the government on anti-inflation policy responses, but the sources said the government would be comfortable if the central bank took two years or even longer to get inflation down to 4%.

The RBI will auction Treasury Bills worth 210 billion Indian rupees ($2.63 billion) later in the day.

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