Bond yields spike temporary; will ease on RBI action: FM

Bond yields have risen since RBI raised interest rates for a second consecutive month on Oct 29

Union finance minister P Chidambaram said the sharp rise in yield on the government bonds, driven by high inflation, was a temporary phenomenon and would come down on Reserve Bank of India taking some steps.

"Interest rates in G-secs (government securities) have risen temporarily, but we hope that The RBI will take some measures, and when the next set of inflation figures come, if food inflation moderates, it's possible that the G-sec rates will go down," Chidambaram said at press conference after launch of Bharatiya Mahila Bank.

Bond yields have risen since the Reserve Bank of India raised interest rates for a second consecutive month on Oct. 29. The yield on 10-year benchmark at close was 9.0 per cent. It had spiked by 10 per cent on Thursday last week.

Chidambaram said the next round of inflation numbers, especially food inflation, would have bearing on the yield. It is possible government bond yields will come down.  He had discussions with Reserve Bank of India Governor Raghuram Rajan today on the issue (g-sec yields), finance minister said.

The WPI inflation for the month of October was placed at seven per cent (y-o-y), which came in higher than 6.46 per cent (y-o-y) noted previous month. The inflation for August was revised higher to 6.99% from earlier estimate of 6.10 per cent. The retail inflation (Consumer Price Index) stood at 10.1 per cent.

Raghuram Rajan, on November 13, had said food inflation is still worryingly high, and the effects of the harvest are still awaited. But looking through the headline numbers, I am somewhat more heartened by the outcome of core CPI inflation, which declined to 8.1 percent from 8.5 percent in September. The momentum for core inflation is also on the decline.