Indian bond yields surged the most in a year on concern the rupee’s tumble to a record low will spur inflation, as trading resumed after a halt triggered by a breach in an indicative daily band.
The rate on securities due 2022 climbed to a six-week high as the local currency sank to an unprecedented 59.9275 per dollar after the Federal Reserve signaled it will pare stimulus measures that have fueled fund flows into emerging markets. The daily cap on yield fluctuations has been removed for today, C.E.S. Azariah, Mumbai-based chief executive officer at the Fixed Income Money Market and Derivatives Association of India, which sets the limit, said in a phone interview.
“The rupee’s weakness has reduced the scope for interest-rate cuts in the near term,” said Srinivasa Raghavan, the Mumbai-based executive vice president of treasury at Dhanalaxmi Bank Ltd. “That is driving yields higher.”
The yield on the 8.15 percent notes due June 2022 jumped 12 basis points, or 0.12 percentage point, to 7.59 percent as of 10:25 a.m. in Mumbai, according to the central bank’s trading system. The rate earlier touched 7.64 percent, the highest level since May 9.
“It is only a durable receding of inflation that will open up the space for monetary policy to continue to address risks to growth,” the Reserve Bank of India said on June 17, after keeping the repurchase rate unchanged at 7.25 percent. “While several measures have been taken to contain the current-account deficit, we need to be vigilant about the global uncertainty, the rapid shift in risk perceptions and its impact on capital flows.”
As the rupee fell this month, foreigners have reduced their holdings of Indian debt by $3.3 billion to $33.8 billion, according to Securities and Exchange Board of India data. India plans to auction 420.22 billion rupees ($7 billion) of permits to foreign investors to buy government securities at an auction today.
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