Benchmark government bond yields rose most in two-and-a-half month on Wednesday after the RBI chief was reported by media as saying inflation was “still quite high”, denting hopes of a 50 basis points rate cut this month.
Data on Monday showed inflation in December had fallen to a three-year low, sparking hopes the Reserve Bank of India could cut interest rates by as much as 50 bps at its policy review on January 29.
However, analysts said a 25 bps cut appeared more likely after Subbarao's comments, which would also curb some of the strong gains seen in bond prices since last December.
The benchmark 10-year bond yield ended 5 bps higher at 7.88%, posting the biggest daily gain in yields since October 30 when it saw a similar rise. The yield rose to 7.89% earlier in the session, its highest since January 10.