India Bond Yields at Two-Week High as Inflation Exceeds Estimate

India’s 10-year bonds were little changed, with yields holding at at two-week high, on concern accelerating inflation will keep the central bank from easing the monetary policy.

The wholesale-price index rose to a 10-month high of 7.81 percent from a year earlier, after climbing 7.55 percent in August, the trade ministry said in New Delhi today. The median of 35 estimates in a Bloomberg News survey was 7.7 percent. The central bank will review its policy on Oct. 30.

“A risk-averse central bank is not expected to let its guard on inflation risks immediately,” Indranil Pan, chief economist at Kotak Mahindra Bank in Mumbai, said in a note. “The headline inflation is unlikely to lead the RBI to start reducing rates this month.”

The yield on the benchmark 8.15 percent notes due June 2022 was little changed at 8.17 percent in Mumbai, according to the central bank’s trading system. The rate is the highest level since Sept. 26.

The Reserve Bank of India has kept the repurchase rate at 8 percent since reducing it by 50 basis points in April.

Earlier, the 10-year bonds advanced after Finance Minister Palaniappan Chidambaram said lower interest rates are needed to bolster economic growth.

Asia’s third largest economy grew 5.5 percent in the three months through June, government data show, after expansion of 5.3 percent in the previous quarter, the least since 2009.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, was little changed at 7.63 percent, data compiled by Bloomberg show.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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