MUMBAI, Dec 13 (Reuters) – Indian government bond yields dipped in early trade on Wednesday, tracking a fall in U.S. peers and oil prices, with the focus now shifting to the Federal Reserve’s policy outcome.

The 10-year benchmark bond yield IN071833G=CC was at 7.2625% as of 10:00 a.m. IST, after ending the previous session at 7.2745%.

U.S. Treasury yields edged lower on Tuesday after inflation data reinforced views that the Fed will hold rates steady after its two-day policy meeting ending on Wednesday in U.S. trading hours.

The U.S. core consumer price index increased 0.3% in November after climbing 0.2% in the prior month, meeting economists’ expectations.

The inflation print shows that the disinflation path continues to be bumpy, said Madhavi Arora, lead economist at Emkay Global Financial Services.

“It is unlikely to move the needle for Fed meeting (rates to stay on hold), while pricing for rate cuts remain virtually unchanged, with the first cut being priced in for May 2024.”

The Fed has raised its policy rate by 525 basis points to the current 5.25%-5.50% range since March 2022.

Meanwhile, oil prices fell more than 3% on Tuesday to their lowest level in six months on concerns of oversupply and after U.S. economic data showed an unexpected rise in consumer prices.

Falling oil prices bode well for the inflation outlook for import-dependent nations like India.

India’s retail inflation in November rose at its fastest pace in three months due to higher food prices, strengthening expectations that the Reserve Bank of India (RBI) will not ease interest rates anytime soon.

Annual retail inflation rose to 5.55% in November from 4.87% in the previous month. However, this was below the 5.70% forecast by a Reuters poll.

“The continued moderation in core inflation should provide respite to the RBI, which should keep them on a prolonged pause mode,” said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.

By Admin

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