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India’s Bond Yields Approach Two-Week High on Inflation Concern

India’s bonds dropped, pushing yields toward a two-week high, as a government report showed the pace of consumer-price gains held near 10 percent.

The consumer-price index rose 9.86 percent from a year earlier in July, compared with a revised 9.93 percent gain in June, the Central Statistical Office said in New Delhi today. Reserve Bank of India Governor Subir Gokarn said on Aug. 19 that inflation is currently the main threat to India’s economy.

“The inflation number remains too high for comfort,” Dariusz Kowalczyk, a strategist at Credit Agricole CIB in Hong Kong said in a research note today. “The reading will make it more difficult for the Reserve Bank of India to cut rates.”

The yield on the 8.15 percent notes due June 2022 rose one basis point, or 0.01 percentage point, to 8.25 percent in Mumbai, according to the central bank’s trading system. It touched 8.26 percent on Aug. 16, the highest level since Aug. 3.

India can only consider cutting interest rates once inflation shows “sustainable signs of moving down,” Gokarn said at a conference in Goa. The central bank refrained from lowering borrowing costs in July, after reducing the repurchase rate by 50 basis points to 8 percent in April.

One-year interest-rate swaps, or derivative contracts used to guard against fluctuations in funding costs, rose three basis points to 7.84 percent, according to data compiled by Bloomberg.

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