India 10-year bond yields see biggest rise in 3 months on RBI rate hike

PNB Gilts

05/08/2022 12:40

By Dharamraj Lalit Dhutia
    MUMBAI, Aug 5 (Reuters) - India's 10-year bond yield posted
its biggest single-session rise in three months on Friday, after
the Reserve Bank of India (RBI) raised rates and maintained a
tough monetary policy stance. 
    The benchmark bond yield  IN065432G=CC  rose 14 basis points
to end at 7.3005%, after closing at 7.1516% a day earlier. For
the week, however, the yield eased two basis points lower. 
    The bond market was open for trading for an extra hour and a
half due to a delay in a weekly debt auction result, traders
said. 
    The RBI's monetary policy committee (MPC) raised the key
lending rate, or the repo rate  INREPO=ECI , by 50 bps on
Friday, the third increase in the current cycle to cool
stubbornly high inflation that has remained above the central
bank's tolerance band for six straight months.  urn:newsml:reuters.com:*:nL1N2ZG0AD
    "Rate hike was expected, but the shock reaction because
market had positioned for a lesser quantum and some dovish
commentary, both of which did not materialise today," said Vijay
Sharma, senior executive vice president at PNB Gilts. 
    The fixed-income trader expects the benchmark bond yield to
trade in the range of 7.20-7.35% in the near term, with major
focus on global fundamentals like oil prices and U.S. Treasury
yields.
    With June retail inflation hitting 7%, economists polled by
Reuters expected the third rate hike in four months, but views
were widely split between a 25 bps to a 50 bps increase.
 urn:newsml:reuters.com:*:nL4N2ZD1IF
    While hiking rate, the RBI kept growth and inflation
forecasts unchanged at 7.2% and 6.7%, respectively, but
highlighted concerns over the former. 
    Kunal Kundu, Societe Generale's India economist, sees
inflation dropping below 6% from 2023 but expects one more rate
hike of 35 bps, which will end the current interest rate hike
cycle. 
    Bank of Baroda said it was expecting the RBI to hike repo
rate by another 50 bps and the 10-year yield to rise to around
7.50% level by the end of September. 

 (Reporting by Dharamraj Lalit Dhutia; Editing by Anil D'Silva)
 ((Dharamrajlalit.dhutia@tr.com))