Mumbai: The 10-year government bond prices declined for the fourth session on Friday after accelerating economic growth amid raising crude oil increased expectations of a rate hike at next Reserve Bank of India (RBI) policy meeting.
At 9.15am, the 10-year bond yield stood at 7.864% from its Thursday’s close of 7.826%. Bond yields and prices move in opposite directions.
India’s economy accelerated to 7.7% in the three months ended 31 March, beating the median estimate of 7.4%, government data showed on Thursday. That makes India the fastest growing major economy.
RBI’s next policy decision will be out on 6 June.
“Current macro data—rising core inflation amid strong domestic demand—are signalling that the output gap is closing rapidly. The April core inflation print was significantly above expectations. The Q1 GDP data should give the monetary policy committee enough comfort (on growth) to focus on inflation risks stemming from higher oil prices, a weaker currency and higher minimum support prices”, said Nomura Research in a note to its investors.
“We expect these risks to tilt the Reserve Bank of India’s current “neutral” stance to “withdrawal of accommodation” at the 6 June policy meeting, followed by rate hikes of 25bp each in the forthcoming meetings on 1 August and 4 October. The June policy decision is a close call; we assign a 40% probability to the MPC voting for a 25bp hike in June itself, followed by another 25bp hike in August”, the report added.
Fiscal deficit in the year ended March 2018 came in at 3.53% of gross domestic product, in line with the revised estimates, government data showed.
India revised its fiscal deficit target in February to 3.5% of GDP from 3.2% of GDP for the 2017/18 fiscal year. For the current fiscal year, the government estimates to trim the deficit to 3.3% of GDP.
So far this year, the rupee has weakened 5.23%, while foreign investors have sold $168.10 million and $4.50 billion in equity and debt markets, respectively.
Meanwhile, the rupee was trading at 67.35 against the US dollar, up 0.09% from its previous close of 67.41. The currency opened at 67.43 a dollar and touched a high and a low of 67.32 and 67.44, respectively.
Benchmark Sensex Index rose 0.43% or 149.26 points to 35,074.07. Since January, it has gained 2.5%.