Inflation Outlook Eases As Bond Yields Fall To 4-Month Low

(CTN News) – As prospects of lower inflationary pressures propelled bullish bets, India’s 10-year government bond yield fell below the critical 7.25% mark on Monday.

The 10-year benchmark bond yield was 7.1350% at 10:00 Indian Standard Time (IST), down from 7.1791% at its previous close. In the early part of the session, the yield fell to 7.1321%, its lowest level since September 25.

As a result of the fall in core inflation, the market is ignoring the headline number and focusing more on easing core prices, which is pointing to lower inflationary pressures in the coming months, a trader with a state-run bank said.

In December, retail inflation in India increased from 5.55% to 5.69% on-year despite higher food prices, slightly lower than the 5.87% expected by Reuters.

Economists say core inflation was 3.8%-3.89% in November, down from 4.05%-4.2% in November.

Citi said that with inflationary pressures easing, the chances of RBI’s Monetary Policy Committee changing its stance in February have increased.

Our base case still predicts a stance change to neutral by April, but the bank now reports that February will be a live policy for consideration in the near future.

As part of its efforts to align inflation to its medium-term target of 4%, the MPC has maintained its rates and stance this financial year.

In the early part of last week, yields eased following the release of December producer price data, which fell unexpectedly, raising speculation that the Federal Reserve will cut interest rates sooner rather than later.

Last week, the 10-year yield eased 9 basis points, ending at 3.95% on Friday, after rising 18 basis points the week before.

According to CME Fed Watch, the odds of the Fed cutting rates in March have increased to 73% from 68% last week.

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