Bond gains from softer India inflation data may be short-lived
Bloomberg|
Updated: Oct 13, 2017, 02.01 PM IST
By Kartik Goyal
Investors shouldn’t read too much into Friday’s advance in Indian bonds, which follows a slower-than-estimated rise in inflation last month.
That’s because the softer headline number masks an increase in demand-side pressures, which is what the central bank looks to manage through interest rates. The so-called core inflation climbed to 4.6 per cent in September from 4.5 per cent in August, according to estimates from Deutsche Bank AG.
Consumer prices rose 3.28 per cent in September from a year earlier, slower than the 3.53 per cent median estimate in a Bloomberg survey. The benchmark 10-year bond yield fell 3 basis points to 6.73 per cent in Mumbai on Friday. It reached the highest since mid-May on Monday after the Reserve Bank of India last week held rates steady, raised inflation forecasts and reiterated a neutral policy stance.
September’s CPI data is unlikely to sway the inflation-targeting RBI into cutting rates anytime soon, according to Deutsche Bank and Morgan Stanley.
Also, other negatives for the bond market remain: rising debt supply, central bank’s open-market operations to drain banking-system liquidity, a potential widening of India’s fiscal deficit and likely higher U.S. interest rates.
Investors shouldn’t read too much into Friday’s advance in Indian bonds, which follows a slower-than-estimated rise in inflation last month.
That’s because the softer headline number masks an increase in demand-side pressures, which is what the central bank looks to manage through interest rates. The so-called core inflation climbed to 4.6 per cent in September from 4.5 per cent in August, according to estimates from Deutsche Bank AG.
Consumer prices rose 3.28 per cent in September from a year earlier, slower than the 3.53 per cent median estimate in a Bloomberg survey. The benchmark 10-year bond yield fell 3 basis points to 6.73 per cent in Mumbai on Friday. It reached the highest since mid-May on Monday after the Reserve Bank of India last week held rates steady, raised inflation forecasts and reiterated a neutral policy stance.
September’s CPI data is unlikely to sway the inflation-targeting RBI into cutting rates anytime soon, according to Deutsche Bank and Morgan Stanley.
Also, other negatives for the bond market remain: rising debt supply, central bank’s open-market operations to drain banking-system liquidity, a potential widening of India’s fiscal deficit and likely higher U.S. interest rates.
