MUMBAI: Indian government bond yields were barely changed in early trading on Tuesday after a higher-than-expected domestic retail inflation data prompted investors to assess its impact on the central bank’s plan for monetary policy easing.
However, sentiment was supported by the sharp plunge in oil prices, which bodes well for future inflation trajectory, traders said.
The benchmark 10-year bond yield was at 6.7755% as of 10:00 a.m. IST, compared with its previous close of 6.7827%.
“There is no drastic change in view, but some have started to doubt an immediate rate cut in December, and hence we should see a quiet session today, with yields moving around the prevailing levels,” a trader with a state-run bank said.
India’s retail inflation accelerated to a nine-month high of 5.49% in September due to higher food prices, compared to 3.65% in August and economists’ forecast of 5.04%.
Inflation would ease gradually to end up averaging 4.5% in 2024-25, the Reserve Bank of India forecast last week when it changed its policy stance to “neutral”. Its target is 4%.
Oil prices slid 3% in early Asian trade on Tuesday after a media report said Israel is willing not to strike Iranian oil targets, which eased fears of a supply disruption, and after OPEC lowered its outlook for global demand growth.
The benchmark Brent crude contract was around $75 per barrel. India is one of the largest importers of the commodity.
India bond yields steady ahead of $4bn state debt sale
A favourable debt demand-supply scenario is expected to limit any major upside to yields.
The RBI has nearly stopped selling bonds in the secondary market, while announcing a second debt buyback in two weeks. Sentiment was also buoyed by the FTSE Russell’s plan to include Indian debt in its index.
Indian states aim to raise 130.50 billion rupees ($1.55 billion) through the sale of bonds later in the day.
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