MUMBAI - India government bond yields ended higher on Thursday with the benchmark yield rising above 7%, after the Reserve Bank of India (RBI) maintained rates and stance, but hinted that monetary conditions would remain tight in the near future.
The 10-year benchmark 7.26% 2033 bond yield ended at 7.0224%, highest since May 29 and after closing at 6.9808% in the previous session.
The central bank kept its key lending rate at 6.50% for a second straight time, but Governor Shaktikanta Das said the RBI needed to move towards the primary target of inflation at 4%, and it will do "whatever is necessary to ensure that long-term inflation expectations remain firmly anchored."
Despite hitting an 18-month low of 4.70% in April, analysts do not expect India's inflation to fall to the RBI's 4% medium-term target sustainably in the near term.
The RBI expects inflation to average 5.1% in this financial year, while it sees growth at 6.5%.
"Given that liquidity conditions are likely to remain healthy over the next few months, inflation will be above the 4% target during this period and risks flagged are for the second half of the year," said Suyash Choudhary, fixed income head at Bandhan Mutual Fund.
The nation's overnight indexed swap rates jumped as markets have pushed back the start of the rate cut cycle to 2024. The one-year and five-year swap rates rose to their highest levels in around three months.
Traders now await debt supply, as New Delhi looks to raise 390 billion rupees ($4.72 billion) via the sale of bonds on Friday, which includes a liquid 14-year bond.
Market participants also await the outcome of the U.S. Federal Reserve's monetary policy meeting next week. The odds of a pause in the Fed's rate cycle next week further fell to 70% from around 80%. ($1 = 82.5420 Indian rupees)
(Reporting by Bhakti Tambe; Editing by Nivedita Bhattacharjee)