Eleven-year bonds dropped, pushing yields to a 10-week high, on speculation costlier oil may prompt fuel price increases and stoke inflation.
Crude prices in New York jumped 24 per cent this year, according to data compiled by Bloomberg. India imports more than three quarters of its oil. Indian Oil Corp plans to raise petrol prices at the earliest, chairman R S Butola said in New Delhi.
“The possibility of a fuel price increase soon has damped sentiment,” said Prasanna Patankar, head of fixed-income trading at Securities Trading Corp of India Ltd. “Inflation concerns are very much there.”
The yield on the 7.80 per cent note maturing April 2021, the most-traded government security, rose six basis points to 8.12 per cent at close in Mumbai, according to the central bank’s trading system. The rate was the highest level since February 14.
The wholesale price index rose 8.98 per cent in March from a year earlier, compared with 8.31 per cent in February, the commerce ministry said in a statement on April 15.
Persistent inflation, particularly for food products, was a cause for concern, Prime Minister Manmohan Singh had said last week. The cost of one-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, rose three basis points to 7.83 per cent, the highest level since October 2008.
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RUPEE WEAKENS
The rupee fell the most in two weeks on speculation the nation’s refiners stepped up dollar purchases to pay for costlier crude-oil imports.
“The rupee has come under pressure mainly because of dollar demand from importers, particularly oil companies,” said Paresh Nayar, Mumbai-based head of currency and money markets at the Indian unit of FirstRand Ltd.
The currency dropped 0.3 per cent to 44.49 per dollar at close in Mumbai, according to data compiled by Bloomberg, paring gains this month to 0.2 per cent, the third-worst performance among the 10 most-traded Asian currencies.
Offshore forwards indicate the rupee would trade at 45.26 to the dollar in three months, compared with expectations of 45.09 at the end of last week. Forwards are agreements to buy or sell assets at a set price and date. Non-deliverable contracts are settled in dollars.
CALL RATES FIRM UP
Call rates firmed up further on Monday at the overnight call money market here on sustained buying support from borrowing banks. The overnight call money rate closed higher at seven per cent from last Thursday’s closing level of 6.20 per cent. It moved in a range of 7.00 per cent and 6.90 per cent.