The yield on the government bonds hardened as Reserve bank of India kept on hold the repo rate on concerns of inflation.
The yield on 10-year bond benchmark which was hovering at 8.11% moved up 8.16% within a minute of RBI announcement. It is at present ruling 8.17%, according to Clearing Corporation of India data.
A treasury dealer with Jammu and Kashmir Bank said in an immediate reaction, yields went up as RBI kept the rate (repo rate) unchanged since risks of inflation uptick remain high.
The persistent inflationary pressures alongside risks emerging from twin deficits – current account deficit and fiscal deficit - constrain a stronger response of monetary policy to growth risks, RBI said in the mid quarter review.
The inflation measured by wholesale Price Index (WPI) has remained sticky at around 7.5% till date in the current financial year. The easing of vegetable prices in July-August was to a large extent offset by the surge in prices of cereals and pulses.
The fuel price inflation picked up in August, largely reflecting the upward revision in electricity prices. RBI said the recent hike in diesel prices / rationalisation of LPG subsidy is a welcome step. However, the pass-through to administered prices remains incomplete. International crude prices are vulnerable to being driven up further by global liquidity.