India 2022 Bond Yield Rises a Second Day as Inflation Quickens

The yield on Indian bonds due 2022 rose for a second day on speculation accelerating inflation will limit the central bank’s scope to cut interest rates and spur economic growth.

Wholesale prices, the benchmark inflation gauge, rose 4.86 percent in June from a year earlier, the most in three months, official data showed today. That compares with a 4.7 percent gain in May and the median estimate of 4.94 percent in a Bloomberg survey of economists. Consumer prices climbed 9.87 percent last month, versus 9.31 percent in May, official data showed after trading hours on July 12.

“The rise in consumer-price inflation is a cause for worry,” said N.S. Venkatesh, the Mumbai-based head of treasury at state-run IDBI Bank Ltd. “The reduction in interest rates will happen only when the rupee stabilizes.”

The yield on the 8.15 percent notes due June 2022 added two basis points, or 0.02 percentage point, to 7.67 percent in Mumbai, according to the central bank’s trading system. The rate climbed 18 basis points last month, the most since the securities were issued in June 2012.

Reserve Bank of India Governor Duvvuri Subbarao left the repurchase rate unchanged at 7.25 percent at a June 17 policy meeting, citing inflation risks. A report on July 12 showed India’s industrial output unexpectedly contracted in May, while the rupee reached a record low of 61.2125 per dollar on July 8.

“It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth,” the RBI said in its policy statement last month. The next meeting is on July 30.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, increased eight basis points to 7.62 percent, data compiled by Bloomberg show.

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