Bond gains from softer India inflation data may be short-lived


Bond gains from softer India inflation data may be short-lived

Mumbai: 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% in September from 4.5% in August, according to estimates from Deutsche Bank AG.

Consumer prices rose 3.28% in September from a year earlier, slower than the 3.53% median estimate in a Bloomberg survey. The benchmark 10-year bond yield fell 3 basis points to 6.73% 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 US interest rates.

READ  Rupee Trades In Narrow Range, Settles Flat At 73.64 Against Dollar


Please enter your comment!
Please enter your name here