India's Sovereign Bond Market In Trouble As Inflation Rebound Surprises
This will be the last price print for the Reserve Bank of India before its Dec. 6 decision. Minutes of the previous meeting showed cracks within the monetary policy committee are widening as members disagreed sharply over the path for growth and inflation, resulting in five of the six voting to hold the benchmark repurchase rate at 6 percent until there’s more clarity. The RBI had also raised its inflation forecast and lowered the growth prediction for the year through March, as the lingering effects of last year’s shock cash ban combined with the disruptive roll out of a new nationwide sales tax and climbing global oil costs. Focus now shifts to India’s gross domestic product data for July to September, due Nov. 30. “Inflation has sequentially hardened more than what we had expected,” said Rupa Rege Nitsure, Mumbai-based chief economist at L&T Finance Holdings Ltd. said by phone. “The rise in food prices in tandem with hardening fuel prices and a revival in the US markets will keep the RBI’s hands tied — any chance of a rate cut is now remote.”
India’s stock benchmark was poised to fall for a second straight day after accelerating inflation tempered expectations of a rate cut by the central bank. The S&P BSE Sensex dropped 0.3 percent to 32,945.11 as of 12:25 p.m. in Mumbai, with Larsen & Toubro Ltd. leading losses after lowering a forecast for future orders. The index has climbed 24 percent this year, repeatedly setting records, and sparking concern the rally has gone too far too fast. Data released late Monday showed consumer prices in October rose at the fastest pace in seven months, and may accelerate further amid rebounding oil prices. The Reserve Bank of India meets next month to rule on rates.A “higher inflation trajectory may reduce room for RBI to cut rates,” said Soumen Chatterjee, head of research at Guiness Securities Ltd. “Investors are booking profits as the earnings season is drawing to a close and valuations look uncomfortable.”The NSE Nifty 50 fell 0.4 percent. Forty seven of its constituents have reported quarterly results and of those 28 have met or exceeded analyst expectations, according to data compiled by Bloomberg. That’s helped push the Nifty up 24 percent this year and its valuation to the highest since 2010.
Sovereign bond traders’ worries about inflation are intensifying…Not surprisingly, the yield on the benchmark 10-year notes climbed above 7 percent Tuesday for the first time since last September. The yield could reach as high as 7.10 percent, according to IDFC Bank Ltd. Nomura Holdings Inc. is predicting CPI to rise above 4 percent this month, and to stay above the Reserve Bank of India’s 4 percent target through 2018. Sovereign bonds have been under pressure on concerns rebounding oil prices would widen the government’s budget deficit, forcing it to boost the size of debt sales just when state administrations are borrowing heavily and the central bank is selling debt to suck out excess liquidity from the system.
http://nunezreport.blogspot.com/
Source: http://nunezreport.blogspot.com/2017/11/indias-sovereign-bond-market-in-trouble.html
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