India’s 10-Year Bond Yield Climbs to One-Week High on Inflation

India’s 10-year bonds fell for a third day, pushing the yield to a one-week high, on speculation faster inflation will add pressure on the central bank to raise interest rates.

Consumer prices climbed 9.84 percent in September from a year earlier, exceeding the 9.5 percent median estimate in a Bloomberg survey of economists, official data showed yesterday. Wholesale-price (INFINFY) inflation was at a seven-month high of 6.46 percent, a separate report showed. Reserve Bank of India Governor Raghuram Rajan boosted the repurchase rate by 25 basis points to 7.5 percent last month, the first increase since 2011.

The yield on the 7.16 percent government notes due May 2023 rose eight basis points, or 0.08 percentage point, to 8.66 percent as of 9:45 a.m. in Mumbai, according to prices from the central bank’s trading system. That’s the highest level since Oct. 7. The rate has increased 23 basis points from a three-week low of 8.43 percent on Oct. 10.

“Disconcertingly, inflation momentum remains strong,” Yes Bank Ltd. (YES) analysts led by Mumbai-based Shubhada Rao wrote in a report yesterday. “We expect the RBI to stick to its anti-inflation stance and hike the repo rate by 25 basis points in its policy review on Oct. 29.”

Living costs are rising faster even as the $1.8 trillion economy grows at the slowest pace in a decade. Output at Indian factories, utilities and mines rose 0.6 percent in August from a year earlier, compared with a revised 2.75 percent increase the previous month, official data showed on Oct. 11. The median of 33 estimates in a Bloomberg survey was for a 2 percent gain.

RBI, Rupee

Ten-year notes slumped in each of the last four months, the longest such run since 2009, as the RBI raised interest rates and curbed funding support to banks to stem a slide in the rupee. The currency has rebounded about 12 percent since reaching a record low of 68.845 per dollar on Aug. 28, allowing the RBI to scale back some of the tightening measures. Governor Rajan reduced two rates at which the central bank supplies cash to lenders twice in the past month.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose four basis points to 8.47 percent, data compiled by Bloomberg show. The measure has added nine basis points since Oct. 11, after falling in each of the last six weeks.

To contact the reporter on this story: Shikhar Balwani in Mumbai at sbalwani@bloomberg.net

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

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