India’s 10-year bonds dropped 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. The wholesale-price gauge rose to 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 nine basis points, or 0.09 percentage point, to 8.66 percent in Mumbai, according to prices from the central bank’s trading system. That’s the highest level since Oct. 7. The rate has jumped 24 basis points from a three-week low of 8.42 percent on Oct. 10.
“Disconcertingly, inflation momentum remains strong,” Yes Bank Ltd. 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.
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 more than 11 percent from a record low of 68.845 per dollar on Aug. 28, allowing the RBI to scale back some of the tightening measures. Rajan twice reduced two rates at which the central bank supplies cash to lenders in the past month.
The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose seven basis points to 8.50 percent, data compiled by Bloomberg show. The measure has added 12 basis points since Oct. 11, when it capped a sixth week of declines.