By Anil Varma
May 16 (Bloomberg) -- India's 10-year bonds fell the most in more than a
week after a government re****t showed inflation unexpectedly accelerated.
Yields on benchmark notes rose to the highest in more than two weeks after
wholesale prices in the week ended May 3 rose by the most since November
2004, raising concern the central bank will step up measures to combat
inflation. Bonds also declined as the central bank injected funds into the
banking system, indicating lenders have less money to buy debt.
``The inflation number has come in higher than expected and bond yields
are
going to rise in reaction to that,'' said S. Ananthanarayan, chief bond
trader at Kotak Mahindra Bank Ltd. in Mumbai. ``Bond traders are still not
confident about near-term prospects as the inflation situation keeps
getting
worse.''
The yield on the benchmark 8.24 percent note due April 2018 climbed 5
basis
points to 7.93 percent as of the 5:30 p.m. close in Mumbai, the highest
since April 29, according to the central bank's trading system. The price
fell 0.36, or 36 paise per 100 rupee face amount, to 102.1.
The Ministry of Commerce and Industry said the wholesale price index, the
main gauge of inflation in India, climbed 7.83 percent from a year
earlier,
following a 7.61 percent gain in the week through April 26. Economists
surveyed by Bloomberg News had expected a 7.55 percent increase.
Inflation Rate Doubles
The rate of inflation in Asia's third-largest economy has more than
doubled
this year and exceeded the central bank's target since February as
commodity
prices rose.
The Reserve Bank of India on April 29 asked banks to increase the
pro****tion
of deposits held in reserves to a seven- year high of 8.25 percent, aiming
to reduce surplus money in the financial system that may stoke price
gains.
Bonds also fell after central bank lending to banks increased to a net
196.4
billion rupees ($4.6 billion) at the daily repurchase auction today, the
most since March 31.
That ``is a reflection of the tightening liquidity in the banking
system,''
Kotak's Ananthanarayan said. Spare funds may have declined after the
central
bank ordered lenders to set aside more cash as reserves.
http://www.bloomberg.com/apps/news?pid=20601091&sid=as40uru76w0A&refer=india
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