The yield on the 10-year government bond hit a five-month high as hopes of rate cuts by the Reserve Bank of India (RBI) dimed after India’s retail inflation jumped the most in over three years. Earlier deals, the yield on the 10-year bond was at 6.827 per cent, a level last seen on 3 July and up 5 basis points from its previous close of 6.775 per cent. Bonds have been under pressure over the past few sessions after global rating agency S&P warned that it may downgrade India’s debt and as the RBI unexpectedly kept rates on hold. Since 4 December a day before the announcement of the policy statement 10 year bond yields has jumped 35 basis points.
Retail inflation continued to surge in November, fuelled by soaring food prices as rains damaged crops and disrupted the supply of essential commodities. Retail inflation surged 5.54 per cent in November as food price inflation rose 10 per cent in November from 7.89 per cent in October. In the previous month, core inflation (excluding gold) eased to 3.15 per cent in November from 3.34 per cent.