Rupee, bond prices gains as retail inflation eases to 13-month low

Indian rupee and bond prices gained on Tuesday after consumer price inflation slowed to a 13 month low which eased fears of expected rate hike in the near term. At 9.15am, the home currency was trading at 72.72 a dollar, up 0.24% from its Monday’s close of 72.89. The currency opened at 72.79 a dollar.

Rupee, bond prices gains as retail inflation eases to 13-month low

The 10-year government bond yield stood at 7.773% from its previous close of 7.804%. Bond yields and prices move in opposite directions.

Retail inflation unexpectedly eased in October to 3.31% from 3.7% a month ago on the back of lower prices of pulses, vegetables and sugar while factory output—measured by the index of industrial production (IIP)—decelerated to 4.5% in September from a revised 4.7% in the previous month as manufacturing growth eased.

Core inflation rose to an uncomfortably high 6.1% in October, led by services such as health, as well as the impact of commodity prices on the inflation for transport and communication, household goods and services, and personal care and effects, in sharp contrast to the YoY disinflation in food items.

“The MPC is likely to maintain a status quo on the repo rate in the December 2018 policy review, following the correction in the October 2018 headline CPI inflation print, as well as the recent pullback in crude oil prices and the INR, which have doused concerns related to the inflation trajectory. Nevertheless, the month-on-month rise in prices of various food items so far in November 2018 and the weak start to the post-monsoon rainfall season, need to be watched” said Aditi Nayar, Principal Economist, ICRA Limited

Benchmark Sensex rose 0.23% or 78.33 points to 34,891.32 points. Year to date, it has rose 3.23%.

So far this year, the rupee has declined 12%, while foreign investors have sold $6.05 billion and $7.79 billion in the equity and debt markets, respectively.

Asian currencies were trading mixed. Thai baht was up 0.47%, Singapore dollar 0.12%, China Offshore 0.1%, Japanese yen and China renminbi were up 0.05% each. However, Indonesian rupiah was down 0.77%, Malaysian ringgit and South Korean won were down 0.18% each, Taiwan dollar 0.05%.

The dollar index, which measures the US currency’s strength against major currencies, was trading at 97.554, up 0.01% from its previous close of 97.542.

source: livemint