Indian bond yields likely to rise on RBI’s inflation woes

MUMBAI: Indian government bond yields are expected to rise at open on Thursday, after a hawkish commentary from the central bank on inflation in the minutes of the latest monetary policy meeting.

The benchmark 10-year yield is likely to move in a 7.28%-7.33% band during the day, a trader with a private bank said. The yield ended at 7.2867% on Wednesday.

The Reserve Bank of India (RBI) minutes hinted that the central bank is still worried over elevated inflation and may take more action to control the same, the trader said.

The RBI cannot afford to prematurely pause its rate tightening cycle with inflation staying above its upper tolerance band and core inflation remaining sharply elevated, a majority of the members of the monetary policy committee said.

“A premature pause in monetary policy action would be a costly policy error at this juncture,” Governor Shaktikanta Das wrote in the minutes of the policy meeting released on Wednesday.

The RBI has raised its key policy rate by 35 basis points to 6.25% earlier this month, its fifth straight increase to ward off high inflation, while it is mandated to keep inflation within the target band of 2%-6%.

India’s headline retail inflation eased to 5.88% in November, the first reading of below 6% in 2022, but core inflation stayed above 6%.

Indian bond yields likely to rise on hawkish RBI comments, US yields

“Overall, we think the minutes show that data dependency is rising. Four of the six members highlighted risks to growth,” Rahul Bajoria, chief Indian economist at Barclays said.

“While dissent is likely to remain within the MPC, especially with the recent tell-tale signs that inflation is easing, we think a 25bp hike is still likely in February.”

The markets will also remained focused on Friday’s debt supply, wherein the government aims to raise 280 billion rupees ($3.38 billion).

The government will focus on fiscal consolidation in its Feb. 1 budget, and the median forecast from 37 economists polled from Dec. 13 to Dec. 21 was for the government to limit borrowing to 6.0% of gross domestic product in 2023-24.