MUMBAI, Aug 14 (Reuters) - Indian government bond yields were marginally lower on Wednesday, tracking U.S. peers after benign producer price data, with the focus shifting to U.S. inflation data due later in the day.
The benchmark 10-year yield was at 6.8697% as of 10:05 a.m. IST, compared to its previous close of 6.8786%. Indian financial markets will be closed on Thursday for Independence Day.
U.S. bond yields eased on Tuesday after the July Producer Price Index rose a less-than-expected 0.1%, after rising 0.2% in June, as cheaper services tempered the rise in the cost of goods.
Slowing inflation and a cooling labour market have led financial markets to anticipate that the Federal Reserve will start its easing cycle in September.
Futures markets reflect odds of about 54% that the Fed will cut 50 basis points (bps) against 46% for a 25 bps cut. Traders are pricing in a full percentage point of easing by the year-end.
India's retail inflation eased in July due to vegetable inflation falling and a high base effect. The annual retail inflation was 3.54% in July, the lowest since August 2019, and down from 5.08% in June.
"Given that the 4% inflation target is still missed on a durable basis, we do not think that this sub-4% print would have any impact on the reaction function of the Reserve Bank of India," said Indranil Pan, chief economist at Yes Bank.
The central bank will remain focused on the domestic growth-inflation mix and a long patient hold on the repo rate is the most likely outcome from RBI, Pan added.
Last week, the Indian central bank kept the key interest rate unchanged, retaining its focus on bringing inflation down, even as global market volatility left other major central banks poised to ease policy. (Reporting by Bhakti Tambe; Editing by Janane Venkatraman )
