10-year bond yields hits 7.25% as 7.44% inflation blocks way to cut policy rates

India’s 10-year government bond yields jumped at the start of trading on August 17 after a sharp rise in retail inflation raised the possibility that policymakers would struggle to cut early interest rate cuts.
Bond yields hit 7.25%, up 0.58% as traders sold government bonds – the highest level since April 6.
The benchmark 10-year yield of 7.26% in 2033 traded at 7,2491% as of 10:31 a.m., down from 7,2034% at the close of Aug. 14.
India’s 10-year bonds are not traded on August 15 and 16, as the Indian currency market is closed on those dates due to Independence Day and Parsi New Year.
Bond yields and bond prices are inversely proportional, and so if yields rise, bond prices fall. India’s overall inflation rate breached the upper limit of the Reserve Bank of India’s (RBI) tolerance range of 2-6% in July and hit a 15-month high of 7.44%, due to vegetable prices increased sharply. , data showed by the Department of Statistics and Program Implementation on August 14.
At 7.44%, July’s consumer price index (CPI) inflation was 257 basis points higher than June’s revised figure of 4.87% and for the 46th consecutive month. it exceeds RBI’s medium-term target. equal to 4 percent.
Prior to this leap, the RBI had made solid progress in controlling inflation. However, markets, along with the RBI, are already gearing up for a rebound in inflation in July, with the central bank on August 10 raising its CPI inflation forecast for July-May. 9 added 100 basis points to 6.2% even as its Monetary Policy Committee (MPC) left the repo rate unchanged at 6.5% for the third consecutive session.
“We expect overall inflation to continue to rise for several more months and decline in FY 2023 assuming normalized food prices. Anjali Verma, research analyst at Prabhudas Lilladher, said high Brent crude prices are another concern.
“Until we see inflation taking hold, we maintain our expectation of an extended pause in the RBI. A drop in the core CPI to 5% is a bright spot. Bond yields will stay high, likely slight upside in the short term.”