By Bhakti Tambe and Dharamraj Dhutia
MUMBAI (Reuters) - Indian government bond yields were largely unchanged on Tuesday, as the expected easing of inflation in October was already baked into the market, while the early dip in yields, tracking oil prices, was not sustained.
The benchmark Indian 10-year government bond yield was at 7.2870% as of 0500 GMT, after closing at 7.2866% on Monday. The yield has declined for the last six sessions, dropping by an aggregate of 19 basis points.
As expected, bond yields have flattened out as there was no major surprise on the inflation front, a trader with a primary dealership said, adding that yields will move in a narrow range throughout the day with a focus on global cues.
India's annual retail inflation eased to a three-month low of 6.77% in October, helped by a slower rise in food prices and a higher base effect. The reading was slightly higher than the 6.73% forecast by economists in a Reuters poll but below the September reading of 7.41%.
The RBI has already raised rates by 190 bps since May, to 5.90%, as it battles to reign in inflation that has stayed above its 2%-6% tolerance band for 10 straight months.
Still, the central bank is likely to opt for a 35 basis points (bps) rate hike at its policy meeting in December, after three consecutive 50 bps increases, as inflation eased and is likely to dip further, analysts said.
"Our base case envisages a 35 bps hike in December and a final 25 bps hike in February for a terminal repo rate of 6.50%," said Nomura economists, Sonal Varma and Aurodeep Nandi.
Meanwhile, oil prices eased on Thursday, which lead to an initial buying in local bonds, as India is one of the major importers of the commodity. The benchmark Brent crude contract was below $93 per barrel, after easing 3% on Thursday.
(Reporting by Bhakti Tambe and Dharamraj Dhutia; Editing by Savio D'Souza)