India bonds gain for 7th day in a row as inflation eases


The benchmark Indian 10-year government bond yield fell today as data showed that inflation eased below 7% in October. But the gains in bond prices were capped as the easing of inflation in October was already baked into the market, say analysts. Bond prices are inversely related to yields. The benchmark Indian 10-year government bond yield dipped to 7.281% after closing at 7.2866% on Monday. The yield has declined for the seventh session in a row, dropping by an aggregate of 19 basis points.

Data released on Monday after market hours showed that India’s annual retail inflation eased to a three-month low of 6.77% in October but the reading was slightly higher than the 6.73% forecast by economists in a Reuters poll. The reading was also above RBI’s tolerance band of 2%-6% for 10th straight month. The RBI has already raised rates by 190 bps since May, to 5.90% to tame inflation.

“With global commodity prices coming off their highs, we expect headline inflation to ease, and range near the RBI’s target, in coming quarters.We are closely surveilling the consistent global policy re-pricing, evolution of the global pace of inflation and the impending recession on DM central bank policies, as these could have implications for India. But the RBI is still some time away from reaching its supposed forward real neutral rate of 0.8-1%, even as the forward real repo rate has turned a tad positive,” Emkay said in a note.

Emkay expects RBI to hike rates by 35 bps in December.

Bonds were also supported by a dip in oil prices. Brent crude fell to to $92.87 a barrel as rising COVID-19 cases in China sparked fears of lower fuel consumption from the world’s top crude oil importer and lowering of demand forecast by OPEC.


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