10 year bond yield falls four basis points as inflation cools off a bit

India's 10 year bond yield fell nearly four basis points on Wednesday as consumer price inflation (CPI) rose slower than expected in June but remained beyond the central bank's tolerance band and crude oil hovered below $100 ahead of looming US inflation data which will supply further clues on the US Federal Reserve's rate trajectory.

At 9.22am, the 10 year bond yield was trading at 7.36% versus its previous close of 7.395%. Bond yield and prices move in opposite directions.

"The CPI inflation print cooled only marginally in June 2022, but nonetheless offered welcome relief," said  Aditi Nayar, chief economist of ICRA.

The latest inflation number is unlikely to have any effect on the Indian central bank's rate hike plans, with June being the 33rd month in a row that CPI inflation has come in above the medium-term target of 4 percent.  The central bank's monetary policy committee (MPC) is scheduled to next meet from August 2-4, having already raised the repo rate by 90 basis points to 4.9 percent over two meetings in May and June.

"With commodity prices having eased sharply on the back of a feared global recession, and the decline in vegetable and edible oil prices, the Indian retail inflation prints should soften below 7% in the coming months. However, the sequential momentum in services inflation remains a key monitorable, as high domestic demand is likely to create upward pressure on prices for this sector. We continue to foresee frontloaded rate hikes of 60 basis point spread over the next two policy reviews followed by an extended pause, as the MPC will focus on containing inflationary expectations without sacrificing growth," Nayar added.

India's headline retail inflation rate, as measured by CPI, stayed largely unchanged at a high of 7.01 percent in June as against 7.04 percent in May.

US CPI will be out later today. For June it is expected to show an 8.8% increase from a year earlier, marking the largest jump since 1981, according to the median forecast by a Bloomberg survey.

Meanwhile, the home currency was trading little changed against the dollar. At 9.22am, the rupee was trading at 79.58 a dollar, up 0.03% from its previous close of 79.60.