(Reuters) - Indian government bond yields were trading marginally higher on Thursday, after the Reserve Bank of India's latest monetary policy meeting minutes showed the central bank raising concerns over inflation.
The benchmark 10-year yield was at 7.3032% as of 10:10 a.m. IST, after ending at 7.2867% on Wednesday.
"The minutes have further confirmed that the central bank's fight against inflation is still not over, and we are seeing some selling pressure in bonds," said a trader with a state-run bank.
The RBI cannot afford to prematurely pause its rate tightening cycle, with inflation staying above its target band for 10 months to October and core inflation remaining sharply elevated, a majority of the members of the monetary policy committee said.
"A premature pause in monetary policy action would be a costly policy error at this juncture," Governor Shaktikanta Das said, as per the minutes of the policy meeting released on Wednesday.
The RBI has raised its key policy rate by 35 basis points to 6.25% earlier this month, its fifth straight increase to tame high consumer prices, while it is mandated to keep inflation within the target band of 2%-6%.
India's headline retail inflation eased to 5.88% in November, the first reading below 6% in 2022, but core inflation stayed above 6%, leading to bets of another rate hike in February.
The RBI could take the key policy rate to 6.75% next year, as core inflation stays elevated and the U.S. Federal Reserve continues to hike rates, Arun Bansal, executive director, and head of treasury at IDBI Bank, said.
"The focus will now be on core inflation that continues to be above 6%...The RBI will also have to be mindful of the rupee's depreciation and the narrowing interest rate differential with the U.S. There is still a 60% probability that the terminal repo rate is hiked to 6.75%."