Indian bonds steady after RBI minutes hint at further rate hikes

what happened

Indian government bond yields were almost unchanged on Thursday, with the benchmark near 7.45%. Minutes of the latest policy meeting showed members of the rate-setting panel believe more hikes may be needed to rein in inflation.

The Reserve Bank of India lifted its repo rate to 5.50% earlier this month, its first increase in nearly four years, and changed its stance to "calibrated tightening" from "neutral". Nomura, citing remarks from Governor Sanjay Malhotra, said markets expect a bigger hike in December, though it still sees a 25 basis point move followed by a pause.

The benchmark 6.94% 2036 bond yield has risen 69 basis points over the past 10 weeks. Higher oil prices, driven by an escalating Middle East war, and a weak monsoon have pushed food prices up, raising expectations that inflation will exceed 6% in October, above the central bank's upper tolerance band.

why it matters

India imports nearly 90% of its oil, so expensive energy feeds directly into inflation, the rupee and government finances. With Brent above $110 a barrel, expectations of tighter policy are reinforced, which keeps pressure on OIS rates and the domestic debt market.

market impact

Indian bonds and rupee: expectations of tighter policy and costly oil weigh on the market

tags

instruments