By Suvashree Choudhury
MUMBAI (Reuters) - Indian bonds rallied on Friday on optimism that the government will soon take steps to ease a jump in bond yields after word spread that the interim finance minister had met a handful of bankers and analysts to seek feedback on the economy.
In the meeting held late on Thursday, Piyush Goyal allayed concerns around India's fiscal deficit and rising inflation, and sought feedback on massive losses in banks' bond holdings, two participants who attended the meeting told Reuters.
Goyal wanted to know ways in which the government could help banks reduce the trading losses on their bond portfolios due to soaring yields, one of the participants said.
Some of the suggestions from the participants included issuance of floating rate bonds and bond buybacks by the government, he said.
Indian bonds have weakened to multi-year lows as global oil prices surged, causing yields to spike above 8 percent.
The benchmark 10-year bond yield opened at a three-year high of 8.033 percent on Friday, on worries over further rate hikes and a potentially higher fiscal deficit. However, by 0750 GMT the yield had eased to 7.92 percent.
On Wednesday, the country's central bank raised its key policy rate for the first time in four years, citing growing inflation worries due to a steep spike in oil prices and a weakening rupee.
The hike - the first since Prime Minister Narendra Modi came to power - could not have come at a worse time for a government grappling with spending constraints, voter discontent in the rural heartlands and rising oil prices.
Goyal assured the government would stick to its fiscal deficit target of 3.3 percent, responding to concerns over fiscal slippage ahead of an election year, according to one of the participants.
The minister also said that the government's proposed plan to buy food grains at a minimum price from farmers would not be inflationary.
Goyal, who is currently the railway minister, has taken additional charge of the finance ministry temporarily until Arun Jaitley recovers after undergoing a kidney transplant.
"He was just seeking feedback and we do not know whether the government will implement any of these steps or not," another participant at the meeting told Reuters.
(Reporting by Suvashree Dey Choudhury; Writing by Abhirup Roy; Editing by Jacqueline Wong)
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