India Bond Yields Higher Ahead Of Debt Sale Result, Apr CPI Hurts

Friday,   13-May-2022   01:21 PM (IST)

Indian federal government bond yields were higher in the afternoon session as traders awaited the result of a debt auction, while sentiment was dampened after the April inflation print rose to a near-eight-year high, reinforcing bets of aggressive rate hikes ahead. The benchmark 6.54% bond maturing in 2032 changed hands at 94.63 rupees, yielding 7.32% at 1:00 p.m. in Mumbai today, against 95.15 rupees, yielding 7.24%, yesterday. The Indian rupee was at 77.27 to the dollar as compared to 77.42 in the previous session. New Delhi is scheduled to sell 330 billion rupees of bonds today, including 130 billion rupees of the benchmark note. Traders expect weak bidding at the auction and do not rule out the possibility of devolvement. India’s retail inflation rate accelerated to 7.79% in April from a year earlier, quickening for the seventh straight month, and also beat the 7.50% median forecast in a Reuters survey of economists. The print was above the central bank’s tolerance ceiling for a fourth straight month, and up from 6.95% in March. Many brokerages now expect the central-bank led Monetary Policy Committee to opt for a 75-basis-point hike over the next two policy meetings scheduled for June and August, while Nomura expects a 35 bps rate hike in June, followed by a 50 bps hike in August. The MPC, in an off-cycle meeting last week, surprisingly raised the key interest rate by 40 basis points to 4.40%, while also increasing banks' cash reserve ratio by 50 basis points to 4.50%, which will be effective from May 21. State Bank of India said the central bank is likely to again hike banks’ cash reserve ratio to withdraw liquidity surplus and may also conduct bond purchases to aid yield management. The nation’s largest lender expects the central bank to hike the CRR by another 100 basis points, which could lead to withdrawal of another 1.74 trillion rupees from the banking system. India's federal government and the central bank’s actions are expected to help ease inflationary pressure and the capex-driven fiscal policy will spur close to 8% economic growth this year, the finance ministry said yesterday. While elevated crude and edible oil prices have a significant impact on India’s inflation outlook, the federal government's measures to keep the prices of these commodities in check in addition to the recent hike in the policy rate are expected to temper pricing pressure, the ministry said in its monthly economic review. The benchmark Brent crude oil contract was last trading 1.00% higher at $108.60 per barrel. India imports about 85% of its crude oil requirement.