The Indian government bonds were trading lower on Friday after data showed higher than expected April retail inflation figure, raising concerns that the Reserve Bank of India (RBI) may not be able to slash rates at the up-coming policy meeting. The yield on the benchmark 10-year bonds, which moves inversely to its price rose 3bps to 7.450 pct and the yield on the 2-year bond climbed 1bp to 7.121 pct by 0825 GMT.
The India’s retail inflation accelerated in April to 5.39 pct y/y (the fastest pace of annual expansion since January), higher than the market consensus of 5.0 pct y/y, from 4.83 pct in March. The acceleration in inflation was mainly driven by the rise in food prices, which increased more than expected to 1.4 pct m/m in April. The Reserve Bank of India had slashed its benchmark policy rate by 25 bps to 6.5 pct in April, but is widely expected to keep rates unchanged at a June 7 meeting. The RBI aims to keep inflation at 5 pct by March 2017 and lower it to 4 pct a year after that.
The Indian bonds have been closely following developments in oil markets because of their impact on inflation expectations, as India imports 80 pct of its crude oil requirements. Today, the crude oil prices fell in early trading on Friday as a stronger USD weighed and Russia warned that a global crude supply overhang could last into next year. In Canada, crude production outages from oil sand fields following forced closures due to wildfires still stood around 1 million bpd as of Wednesday, although operators said they were gradually ramping up output. The International benchmark Brent futures fell 0.71 pct to $47.74 and West Texas Intermediate (WTI) dipped 0.49 pct to $46.47 by 0830 GMT.
Meanwhile, Sensex fell 1.36 pct or 350.52 points to 25,439.70 and Nifty-50 futures tumbled 1.55 pct or 121.95 points to 7,811.50 by 0830 GMT.
The material has been provided by InstaForex Company – www.instaforex.com