India's benchmark bond yield eases as drop in oil offsets inflation shock
By Dharamraj Dhutia
MUMBAI, Oct 15 (Reuters) -Indian benchmark bond yield ended lower after staying largely unchanged for most of Tuesday's session, as plummeting oil prices more than offset the glum sentiment stemming from higher-than-expected domestic retail inflation print.
The benchmark 10-year bond yield IN071034G=CC ended at 6.7684%, compared with its previous close of 6.7827%.
Oil prices slid due to a weaker demand outlook and after a media report said Israel is willing to not strike Iranian oil targets, easing fears of a supply disruption.
The benchmark Brent crude contract fell nearly 5%, going below $74 per barrel on Tuesday, its lowest level in two weeks.
India is one of the largest importers of the commodity and easing oil prices could reduce inflationary pressures.
The fall in oil outweighed concerns after India's retail inflation accelerated to a nine-month high of 5.49% in September due to higher food prices, compared to 3.65% in August and economists' forecast of 5.04%.
Inflation would ease gradually to end up averaging 4.5% in 2024-25, the Reserve Bank of India forecast last week when it changed its policy stance to "neutral". Its target is 4%.
The jump in retail inflation prompted several economists to push back rate cut bets to the first half of 2025 from early December, with some citing growth as a bigger factor that could determine the timing of an interest rate reduction.
Despite near-term headwinds, a slightly medium-term outlook for food inflation remains favourable, with expectation of strong summer and winter harvest and falling international prices for key commodities such as crude oil, ICICI Securities Primary Dealership said.
The spread between overnight index swap rates and bond yields is set to narrow, as demand for debt remains strong.
Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman
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