Inflation Overshoots Top End Of Range

Bonds under pressure today with the 10-year yield up 2.6bps to 6.031%, 7-year up 5.4bps to 6.129%. CPI rose 6.30% against expectations of a 5.38% rise and above the top end of the RBI's 2%-6% band. It is thought the RBI will look through inflation overshoots in order to safeguard the recovery, but the overshoot has caught many off guard and caused speculation around impending input price pressures. As a note RBI Deputy Governor Patra said earlier in June that the Bank has chosen to look through a recent surge in inflation because it was supply-side driven, and will only turn persistent when demand kicks in. The RBI expects inflation to end up at 5.1% in the fiscal year ending March.

• Markets look ahead to state debt sales today, as well as trade balance data for May where the trade balance is expected to have swung to a deficit.