Bond yields jump on inflation fears

MUMBAI: Government bonds prices crashed on Wednesday after the prime minister’s chief economic advisor said the Reserve Bank of India (RBI) bank may tighten its accommodative monetary stance as early as December to help control spiralling inflation.

The 10-year benchmark bond yield ended 10 basis points higher at 7.69%, a 14-month high and a level last seen in the months following the collapse of Lehman Brothers.

RBI may tighten monetary policy in December as inflation could rise to near 7% in March, news agencies quoted C Rangarajan as saying. Dealers said the liquidity in the banking system was falling day after day. RBI data showed it absorbed only Rs 59,000 crore at the daily liquidity window on Wednesday, down from Rs 61,000 crore on Tuesday and Rs 91,000 crore on Monday.

The rupee rose marginally with the dollar’s losses against some major units supporting sentiment, ending at 46.67 against the dollar.