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Inflation spurs spike in bond yield; rupee hits 1-month low

India’s benchmark 10-year bond yield closed at its highest level in more than six weeks while the rupee ended at a one-month low on the back of a larger-than-expected surge in retail inflation.

The benchmark 10-year bond yield ended at 6.04%, after touching 6.05%, its highest since April 30 and up 4 basis points on the day.

Retail inflation rate rose 6.3% year-on-year in May, from 4.29% in April and sharply above analysts’ estimate of 5.3%. The wholesale price inflation rate rose 12.9%, its highest in at least two decades.

Traders are worried the spike in inflation beyond the RBI’s mandated target band of 2%-6% could force it to act sooner on inflation, but two senior sources said the growth focus will continue for the time being.

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