India’s bonds fell for a second day after central bank Governor Duvvuri Subbarao said inflation, which reached a three-year low in December, was still high.

The wholesale-price index rose 7.18 percent last month from a year earlier, the latest data show. Subbarao, who last cut the repurchase rate by 50 basis points to 8 percent in April, will review monetary policy on Jan. 29. The 10-year bond yield touched a 30-month low of 7.80 percent on Jan. 14.

“Bonds have dropped due to profit-taking by investors, after a sharp rally this week, as rate-cut expectations were tempered by the governor,” said Vivek Rajpal, a fixed-income strategist in Mumbai at Nomura Holdings Inc. “Inflation is still high compared to the central bank’s comfort zone.”

The yield on the 8.15 percent bonds due June 2022 rose three basis points, or 0.03 percentage point, to 7.86 percent as of 10:18 a.m. in Mumbai, according to the central bank’s trading system. It climbed three basis points yesterday.

The RBI considers an inflation rate between 4 percent and 5 percent as a comfortable level, Deputy Governor K.C. Chakrabarty said on Nov. 15.

The one-year interest-rate swap, a derivative contract used to guard against fluctuations in funding costs, rose seven basis points to 7.57 percent, data compiled by Bloomberg show.

To contact the reporter on this story: V. Ramakrishnan in Mumbai at rvenkatarama@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net