MUMBAI: Indian government bond yields fell on Tuesday, as the central bank’s comments on inflation lifted sentiment and helped build on the upbeat momentum seen in the previous session.
The Reserve Bank of India’s (RBI) views came a day after the market interpreted a softer guidance on policy rates from minutes of the central bank’s latest meeting.
The benchmark Indian 10-year government bond yield was at 7.3664% as of 0440 GMT. The yield ended at 7.4075% on Monday, posting its biggest single session fall since Oct. 4.
“Globally, there is not much (of a) change in fundamentals. Hence, local bullish bias after dovish minutes and inflation comments from the central bank should persist at least in the initial part,” a trader said.
In a monthly bulletin published on Monday, the RBI said retail inflation is set to ease from September levels, while economic activity is poised to expand.
“Headline inflation is set to ease from its September high, albeit stubbornly,” the RBI wrote in an article titled “State of the Economy”, adding that the fight against inflation will be “dogged and prolonged”, given the long and variable lags with which monetary policy operates.
Indian bond yields fall as central bank policy minutes seen dovish
India’s retail inflation had accelerated to a five-month high of 7.41% in September, a ninth straight reading above the target band of 2%-6%.
Meanwhile, a member of the RBI’s Monetary Policy Committee (MPC) Jayant Varma told Reuters on Monday that the central bank should pause rate hikes despite unacceptably high inflation to avoid stalling a recovery in economic growth.
The net impact of all steps taken by the central bank, including the rate hikes, has resulted in a close to 250 basis points increase, Varma said.
“It might conceivably be adequate. We don’t know because we started acting in April, the effects of which will be seen only in early to mid-2023.
So, we need to let another quarter pass before we know whether our medicine is working.“ Varma’s comments come after minutes of the September meeting showed policymakers may lean more on data in deciding interest rates, while they appeared divided on the future path of hikes.
The MPC had raised the repo rate by 50 basis points in September, the fourth straight increase to tame stubbornly high inflation.
It has raised repo rate by 190 bps in May-September period. Separately, Indian states aim to raise 169 billion rupees ($2.06 billion) via a sale of bonds later in the day.
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