Mumbai: The 10-year bond yield on Thursday hit fresh 17-month high after the Reserve Bank of India’s (RBI) minutes showed that all members of rate setting committee were worried due to rise in inflation and an uncertain recovery of growth.
The 10-year bond yield was at 7.26%—a level last seen on 21 July 2016, compared to its previous close of 7.219%. Bond yields and prices move in opposite directions.
Most members of RBI’s rate setting committee are increasingly worried about fresh risks to inflation, with their hawkish tone suggesting that the rate cutting cycle has come to an end.
The monetary policy committee members flagged rising crude oil prices, the likelihood of a fiscal slippage and rising inflationary expectations of households as reasons to stay put on rates, show the minutes of the last meeting, released on Wednesday.
“Overall, the minutes suggest that, despite seeing upside risks to their inflation outlook, most members voted for a pause because of growth concerns. This suggests that strengthening of the growth recovery could push a few MPC members towards a tightening bias, if medium-term inflation is seen above 4%. At the next policy meeting (on 7 February), we expect the same five MPC members to vote to maintain the status quo again, but we see a risk that Ravindra Dholakia flips his vote to maintaining the status quo because of higher inflation in November and December”, said Nomura in a note to its investors.
The Indian rupee strengthened marginally against US dollar tracking gains in its Asian peers.
The rupee opened at 64 a dollar. At 9.15am, the home currency was trading at 64.07 a dollar, up 0.08% from its Wednesday’s close of 64.12.
The benchmark Sensex rose 0.14%, or 48.87 points, to 33,826.25. So far this year, it has gained 27%.
So far this year, the rupee has gained 6%, while foreign institutional investors have bought $8.14 billion and $23.22 billion in equity and debt, respectively.
Asian currencies were trading higher. Indonesian rupiah was up 0.22%, China renminbi 0.15%, South Korean won 0.12%, Philippines peso 0.1%, China offshore 0.06%. However, Taiwan dollar was down 0.07% and Hong Kong dollar 0.05%.
The dollar index, which measures the US currency’s strength against major currencies, was trading at 93.339, up 0.03%, from its previous close of 93.313.