WSJ:India Bonds Slip As More Rate Hikes Eyed; Rupee Gains
As Of 1200 GMT
Latest Change
USD/INR 44.07 -0.12
7.80% 2021 Bond 8.46% +1 BPs
Call Rate 8.05% +40 BPs
Forward Dollar Premium/Discount*
June 2.20 -0.20
*Forward Dollar Premium/Discount are midpoints of bid-offer spreads
MUMBAI (Dow Jones)--Indian government bonds slipped Monday as the central bank governor stepped up his rhetoric against inflation, signalling more monetary tightening ahead.
The 7.80% 2021 bond ended at INR95.68, down from INR95.71 Friday, after testing an intraday high of INR96.10.
The losses came as Reserve Bank of India Gov. Duvvuri Subbarao said in a lecture that India needed to raise rates to control inflation. The comments were widely seen as an indication that the RBI plans to continue raising policy rates for as long as inflation remains high. The RBI has already raised rates 11 times since March 2010.
The RBI governor's comments came after an influential government advisory panel indicated that the government may find it difficult to meet its fiscal deficit target, sparking talk of an increase in the supply of government debt to help fund its spending.
The Prime Minister's Economic Advisory Council also echoed the governor's hawkish talk on monetary policy, reinforcing the view that more rate increases were likely.
The hawkish comments by both the council and the RBI could send the yield on the benchmark bond as high as 8.48% over the week, said a rate trading head at a foreign bank.
In the currency market, the Indian rupee gained against the U.S. dollar, tracking upbeat local stocks as risk appetite recovered globally with the growing signs of a resolution to the political deadlock over the U.S. debt ceiling hike.
The dollar was trading late at INR44.07, down from INR44.19 late Friday.
"Volumes were good today as exporters looked to sell the greenback while importers saw the correction as a good trigger to cover their exposures, too," said the trading head at a private bank.
The Bombay Stock Exchange's Sensitive Index rose 117.13 points, or 0.6%, to close at 18,314.33.
-By Bijou George, Dow Jones Newswires; +91-22-6145-6114; bijou.george@dowjones.com
