India Bond Yields Rise as Inflation Hits Two-Year High
India's benchmark bond yields rose following October inflation data that exceeded the central bank's 6% ceiling, sparking expectations for further interest rate hikes in December.
India's benchmark 2036 government bond yields rose to 7.2467% on November 12, driven by rising U.S. Treasury yields and an upcoming 34,000 crore rupee bond auction. The market volatility followed the release of provisional data showing October retail inflation hit a two-year high of 6.09%, surpassing the Reserve Bank of India's upper tolerance limit of 6%.
Food inflation accelerated to 8.94%, with sharp price increases for onions, garlic, ginger, and lemons. The Ministry of Statistics and Programme Implementation noted that rural areas faced higher price pressures at 6.63% compared to 5.41% in urban areas. Officials attributed the surge to erratic weather, El Niño-linked rainfall deficits, crop diseases, and rising global commodity costs linked to conflict in West Asia.
In response to these pressures, the central bank raised its policy repo rate to 5.50% on October 7. Traders and analysts now anticipate further rate increases of 25 to 50 basis points during the Monetary Policy Committee meeting scheduled for December 2-4.
