MUMBAI: Indian government bond yields declined on Tuesday, with the benchmark ending below 7% for the first time since April last year, as easing inflation improves the outlook for interest rates, as well as fixed-income assets.
The 10-year benchmark 7.26% 2033 bond yield ended at 6.9640%, its lowest level since April 7, 2022 . It closed at 7.0062% in the previous session.
India’s headline retail inflation eased to an 18-month low of 4.7% in April, from 5.66% in the previous month - below the central bank’s upper tolerance limit for the second consecutive reading. A Reuters poll had predicted April inflation at 4.80%.
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“The latest inflation data confirms our view that the Reserve Bank of India’s (RBI) monetary policy committee is likely done with its hiking cycle,” said A Prasanna, head of research at ICICI Securities Primary Dealership.
“While we still expect overall inflation to average 5.2% in the current fiscal year … it is plausible that risk to the projection is now tilting a little to the downside rather than to the upside.”
Easing inflationary pressures also raised hopes that the RBI, which targets inflation at 4% in the medium term, will now maintain a prolonged pause.
The central bank had surprised markets with a status quo on rates in April, against expectations of a 25-basis point hike.
The next RBI policy decision is due on June 8, which would be followed by the Federal Reserve policy decision on June 14.
Meanwhile, traders will also remain focused on weekly debt auction, as New Delhi seeks to raise 330 billion rupees ($4.04 billion) via the sale of bonds, including 140 billion rupees of the benchmark paper on Friday.
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