The Indian government bonds plunged on Thursday after data showed that country’s wholesale price index (WPI) inflation surged to 20-month high in June, indicating that the Reserve Bank of India would not ease its key policy rate immediately.
The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 1/2 basis points to 7.288 percent, the yield on 5-year bonds bounded 1-1/2 basis points to 7.132 percent and the yield on short-long 2-year bonds jumped more than 2 basis points to 6.920 percent by 07:00 GMT.
India’s wholesale prices, as measured by the wholesale price index (WPI) for the month of June, surged on rise in food and fuel prices, which has raised concerns that the Reserve Bank of India (RBI) may not be able to slash rates at the up-coming policy meeting. The RBI has targeted to reach inflation at 5 percent by March 2017, to necessitate an easing bias.
The Indian wholesale price index (WPI) inflation jumped to 1.6 percent y/y in June, higher than the market consensus of 1.19 percent, as compared to 0.79 percent in May. The rise in inflation was majorly driven by the higher price of petrol, diesel, kerosene, LPG, furnace oil and aviation turbine fuel.
On Wednesday, the consumer inflation rose 5.77 percent in June, bit higher than the market consensus of 5.73 percent, as compared to 5.76 percent in May.
According to Reuters, two television news channels reported that Prime Minister Narendra Modi may name Arvind Panagariya as the next governor of the Reserve Bank of India. He is currently the vice chairman of top government think-tank NITI Aayog.
"Personally, I am a dove when it comes to inflation. It is not clear to me that once inflation has been brought down to 7-8 percent range, pushing the brakes further on money supply buys us a lot. Moreover, given that a very large part of the economy is simply cutoff from credit markets, it is not clear how effective the interest-rate hikes are in taming inflation", said Arvind Panagariya in an interview to the Wall Street Journal.
Meanwhile, the Sensex rose 0.24 percent or 66.60 points to 27,877.72 and Nifty-50 futures trading 0.52 percent higher or 45 points at 8,558 by 07:30 GMT.
