The ederal bonds weakened for a second straight day on Friday as strong economic data coupled with hawkish comments by top central bank officials raised concerns about higher local rates in the near term. Robust demand by banks for funds to secure their cash needs ahead of the financial half-year close sent money market rates spiraling to six-month highs above 7.5%, dampening the appetite for debt.
The yield on the 10-year benchmark bond ended at 7.64% compared to Thursdays close of 7.62%. The market was looking for a trigger and the robust economy numbers provided a good opportunity for traders to take some money off the table before the long weekend, said a fund manager.
The RBI is still concerned about inflationary pressures and the pace of credit growth. While it is unlikely to hike rates in the October 31 policy review, its statements are likely to be considerably hawkish, perhaps even hinting at an interim rate hike, said ABN Amro in a note. Indias economy grew at an annual pace of 8.9 % in the April-June quarter from a year earlier, beating market expectations of 8.5% growth and renewing concerns the central bank may raise rates further to cool inflationary pressures in an expanding economy.
The rupee finished steady on Friday as expectations that China could let the yuan rise offset data that showed Indias current account swung to a deficit in April-June from a surplus a quarter earlier. The partially convertible rupee ended at 45.92/93 against the dollar, unchanged from the previous close. But it has lost 1.9% this year as high oil prices widened the trade deficit. Oil is Indias biggest import.
The current account deficit data was bad, said a senior forex dealer at a foreign bank. But I think this was the worst quarter and data will get better as oil prices ease. We expect full-year current account deficit to be around $18 billion, he added On the forward market front, the six-month annualised premia closed at 1.29%, while the twelve-month annualised premia ended at 1.33%.