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India Bond Yields Stay Lower As Retail Inflation Rate Slows

Wednesday,   13-Jan-2021   01:24 PM (IST)

Indian federal government bond yields stayed lower in the afternoon session after retail inflation rate in December eased into the central bank’s tolerance band. The benchmark 5.77% 2030 bond changed hands at 98.94 rupees, yielding 5.92% at 1:00 p.m. in Mumbai, against 98.82 rupees, yielding 5.93% yesterday. The Indian rupee was at 73.11 to dollar against 73.26 yesterday. Retail inflation for December stood at 4.59%, easing from at 6.93% in the previous month and was sharply lower than the 5.28% median forecast in a Reuters’ survey of economists. Core inflation was at 5.5% in December, against 5.7% in November, according to Nomura. December’s inflation rate fell below the Reserve Bank of India’s tolerance ceiling of 6% for the first time in at least seven months on lower food prices. The RBI is mandated to target inflation between 2%-6% and the current target is applicable till the end of this fiscal year. India’s rate-setting Monetary Policy Committee, constrained by elevated inflation, held its key repo rate unchanged at a record low of 4%, while maintaining an accommodative stance at least into the next financial year. The panel has slashed the key repo rate by 115 basis points in March to May to boost growth in an economy wrecked by the coronavirus pandemic. The RBI expects inflation to ease to 6.8% in the current quarter and to 5.8% in January-March. It projects the key price gauge in the 4.6%-5.2% band in the first half of next year. Most analysts expect the MPC to hold rates at their next meeting in February as the RBI will remain watchful about rising crude oil prices. Meanwhile, the RBI has constantly aided the economy with adequate liquidity and reiterated that it would help absorb a record government borrowing through open market operations. It will conduct a so-called special open market operation worth 100 billion rupees tomorrow. The benchmark Brent crude oil contract was 0.7% higher at $57 per barrel, after an industry report showed a further slump in U.S. crude oil inventories. India imports nearly 85% of its crude oil requirements.