India bond yields rise as RBI hikes rate by 50 bps

·1-min read
A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai

MUMBAI (Reuters) - Indian government bond yields reversed its declining trend after the country's central bank raised its key policy rate by 50 basis points on Friday in an effort to tame stubbornly high inflation.

The 10-year bond yield was at 7.2588%, as of 0545 GMT. It had declined to 7.1073% earlier on Friday after ending at 7.1516% on Thursday.

The monetary policy committee (MPC) raised the key lending rate or the repo rate to 5.40%. The rates were hiked by 40 bps and 50 bps in May and June.

"The central bank not only chose to hike by the upper-end of the expectation, but the comments and prediction on inflation are tilting towards the hawkish side," a trader with a private bank said.

The MPC retained its GDP growth projection for 2022/23 at 7.2%, while its inflation forecast remained unchanged at 6.7%.

India's headline retail inflation eased to 7.01% in June from an eight-year high of 7.79% in April.

"After a media report yesterday that the Reserve Bank of India will pause after August, we saw a sharp rally, but all of that is completely reversed now. We expect at least another 60 basis points of hike in this cycle," a trader with a primary dealership said.

HDFC Bank and Kotak Mahindra Bank, however, continue to expect a terminal repo rate of 5.75% by December.

Market participants will now focus on commentary from central bank Governor Shaktikanta Das at a press briefing scheduled at 0630 GMT.

(Reporting by Dharamraj Lalit Dhutia)

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