Indian bonds fall; central bank policy to provide rate direction
* 10-year bond yield ends 1 bp higher at 8.44 pct * India defers 150 bln rupee bond sale to Monday * Govt FY14 borrowing to include 500 bln rupee debt switch By Subhadip Sircar MUMBAI, Sept 17 (Reuters) - Indian government bonds fell on Tuesday, snapping two days of gains, as a surprise rise in inflation added to policymakers' woes ahead of the central bank's monetary policy review later this week. The need for rupee stability as well as the re-emergence of inflationary threat has made it difficult for new central bank Governor Raghuram Rajan to easy policy rates. Headline inflation in August rose to a six-month high, largely driven by food inflation, which accelerated to a three-year high of 18.18 percent, government data released on Monday showed. Bond dealers are waiting to see whether the central bank provides succour by relaxing some of the cash-tightening steps it had initiated since mid-July to stabilise the rupee. The rupee has recovered 6.7 percent since Sept. 4, the day Rajan took over, as geopolitical risks arising out of a possible conflict in Syria abated and the new governor took steps to attract inflows. Rajan's move to offer concessional swap rates to lenders to attract dollar deposits from foreigners and allowing banks to raise more funds overseas has helped ease concerns on inflows. "In our view, the recent INR correction means further measures to stabilise the currency are likely to be deferred," Standard Chartered Bank analysts wrote in a note. "Instead, the governor might reiterate that measures announced on 4 September have succeeded in anchoring exchange-rate expectations, and that US dollar (USD) inflows in the next few months should ensure smooth funding of a narrower current account deficit," it said. The 10-year bond yield closed 1 basis point higher at 8.44 percent. It traded in a 8.33-8.47 percent band during the session. The Reserve Bank of India postponed a 150-billion-rupee bond sale scheduled this week to Sept. 23, which dealers said was likely due to the central bank's monetary policy review on Friday. The government may detail its borrowing calendar for October-March on Sept. 23, sources told Reuters. The government plans to stick to its gross borrowing target of 6.29 trillion rupees in 2013/14, which will include 500 billion rupees of debt switch, sources said. In the overnight indexed swap market, the benchmark five-year rate closed flat at 8.35 percent, while the one-year rate ended down 2 basis points at 9.17 percent. (Editing by Prateek Chatterjee)
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