MUMBAI: India’s benchmark 10-year bond yield rose to its highest level in a week on Monday as a rally in global crude oil prices to nearly $120 a barrel added to concerns over imported inflation.
The benchmark 10-year bond yield ended trading at 7.41%, its highest level May 23.
Oil prices hit their highest level in more than two months, as traders waited to see whether a planned European Union meeting would reach an agreement on banning Russian oil imports.
The EU is due to meet on Monday and Tuesday to discuss a sixth package of sanctions against Russia for its invasion of Ukraine, actions which Moscow calls a “special military operation”.
“We expect the benchmark 10-year yield to trade in the 7.30-7.45% range in the near term amidst elevated crude oil prices and MPC rate decision next week,” said Upasna Bhardwaj, economist with Kotak Mahindra Bank.
US Treasury yields, however, ended near six-week lows on Friday as concerns about growth and signs that inflation may have peaked led investors to speculate that the Federal Reserve may not raise rates as much as previously expected.
In India, traders are broadly bracing for a 50-basis-point increase in the key lending repo rate by the central bank next week after its June 6-8 monetary policy committee meeting.
In the latest Reuters poll conducted in mid-May, over a quarter of economists, 14 of 53, expected the RBI to hike interest rates by 35 basis points to 4.75% next month, while 20 expected a larger move ranging from 40 to 75 basis points, including ten who forecast a 50 basis point hike.
The Reserve Bank of India’s primary focus is to bring inflation down closer to target but it cannot disregard the concerns around growth, governor Shaktikanta Das told newspaper Economic Times in an interview published on Friday.