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Bond yields edge lower on hopes govt will not exceed borrowing target

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MUMBAI: India’s benchmark 10-year bond yield edged lower on Thursday after a source said the government will not need to borrow additional funds from the market in the current fiscal year.
There is no plan to revise the medium-term inflation target of 4%, while the government will not need to borrow any additional sums in 2022/23, a source told reporters on Wednesday.
On Saturday, the government announced a series of changes to the tax structure for crucial commodities in a bid to insulate consumers from rising prices, with inflation hitting an eight-year high of 7.79% in April.
Experts warned the loss of revenue from the measures announced to tame inflation would mean the government will likely miss its fiscal deficit target and have to borrow more from the market.
“The comments have helped sentiment to a small extent but it is very early in the year. Any additional borrowing will only be announced in the second half, so these comments cannot be assumed to be sacrosanct,” a senior fixed income trader at a private bank said.
India’s benchmark 10-year bond yield was trading at 7.29%, down 1 basis point from its previous close.
The fall in yields was limited on the back of firm global crude oil prices, which are threatening to keep up pressure on inflation in a country that imports over two-thirds of its oil requirements.
Oil prices rose on Thursday, extending a cautious rally this week on signs of tight supply while the European Union wrangles with Hungary over plans to ban imports from Russia, the world’s second-largest crude exporter, after it invaded Ukraine.
The inflation outlook is likely to remain a concern for the central bank too and analysts expect more interest rate increases following the 40 basis point out-of-turn hike announced earlier in the month.
“Given the central bank’s desire to signal that inflation management remains key for its policy objectives, we believe the RBI will stay the course, and deliver a 50 bp rate hike in the repo rate in June, taking it to 4.90%,” said Rahul Bajoria, a senior economist with Barclays.
“We expect the decision to be unanimous, and also see the bank raising its inflation forecasts, and downgrading its growth projections for FY22-23,” he added.
The RBI’s monetary policy committee is scheduled to meet between June 6-8 and the governor will announce its decision on June 8.



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