India’s 10-year bonds declined a third day, pushing their yield to the highest level this month, on speculation the central bank will increase borrowing costs at its policy review tomorrow after inflation quickened in May.
The Reserve Bank of India will increase the repurchase rate by 25 basis points to 7.5 percent, according to 19 of 20 economists in a Bloomberg survey. One predicts no change. The central bank has increased rates nine times since March 2010. The wholesale-price index rose 9.06 percent from a year earlier after an 8.66 percent jump in April, the commerce ministry said in a statement yesterday.
“Bonds are reflecting inflation concerns as they continue to surprise on the upside,” said Gaurav Kapur, senior economist in Mumbai at Royal Bank of Scotland Group Plc. “The RBI may remain on a preemptive mode.”
The yield on the 7.8 percent notes due April 2021 rose seven basis points, or 0.07 percentage point, to 8.40 percent as of the 5 p.m. close in Mumbai, according to the central bank’s trading system. That’s the highest since May 31.
A decline in prices of food articles may help to slow inflation in India in the coming months, Finance Minister Pranab Mukherjee said in an e-mailed statement yesterday. The government will watch local and global developments in the coming months and make “appropriate adjustments” to curb inflation, Mukherjee said.