India Bond Yields Rise This Week, Minutes Hint At More Rate Hikes

Friday,   20-May-2022   04:15 PM (IST)

Indian federal government bond yields ended higher this week as the minutes of the latest monetary policy meeting hinted at more frontloading of policy rate hikes by the central bank in the months ahead. The benchmark 6.54% bond maturing in 2032 ended at 94.40 rupees, yielding 7.36%, against 94.65 rupees, yielding 7.32%, yesterday. The benchmark bond yield rose four basis points this week, after easing 13 basis points last week. The Indian rupee was at 77.55 to the dollar, down 0.1% this week. In the minutes, released earlier this week, members of the panel have said the authority will have to frontload rate hikes to respond to elevated prices brought on by shortages and supply bottlenecks. “In the absence of supply augmenting measures and/or easing of supply bottlenecks, they (MPC) will do what they can do -- frontload their actions, compress demand and render the recovery stillborn,” Reserve Bank of India Deputy Governor and MPC Member Michael Patra said. The RBI will remain resolute and committed to bringing back inflation closer to the target through all possible instruments at its disposal, Governor Shaktikanta Das, who also heads the MPC, said. Earlier this month, the Monetary Policy Committee raised the key repo rate by 40 basis points, its first such move in nearly four years, in an unscheduled meeting. The move was followed by India's retail inflation breaching the RBI's upper tolerance level for the fourth straight month, with the reading in April climbing to 7.79%, the highest in nearly eight years. Most market participants including a majority of foreign brokerages now expect the rate-setting body to hike the repo rate by an aggregate of 75 basis points over the course of the next two meetings in June and August. While Nomura expects the repo rate to rise to 6.25% by April 2023, ICICI Securities Primary Dealership expects the terminal policy repo rate will likely be at least 6.50% in the current rate hike cycle as the real policy rate will need to rise above equilibrium level of around 1%. Meanwhile, the rise in bond yields was capped as U.S. Treasury yields fell for a second consecutive week, amid worries over growth in the worlds' largest economy. The 10-year yield was trading at 2.86%, down six bps this week, after easing 21 bps last week. The benchmark Brent crude oil was trading at $112.25 per barrel, up 0.6% this week. India imports nearly 85% of its crude oil requirements.