Govt bond selloff to continue as RBI policy minutes hint at more rate hikes
Benchmark 6.94% 2036 bond yield may trade between 7.40% and 7.47%, trader at a primary dealership says
Indian government bonds are expected to decline further on Thursday, as minutes from the latest monetary policy meeting suggest the rate-setting panel may need to raise interest rates further to combat inflation. The benchmark 6.94% 2036 bond yield could trade between 7.40% and 7.47% after closing at 7.4427% the previous day. The Reserve Bank of India increased the repo rate by 25 basis points to 5.50% in early April, its first hike in nearly four years, and shifted its stance to "calibrated tightening" from "neutral," signaling more rate hikes to come.
Inflation concerns have been exacerbated by a sharp rise in oil prices due to the Middle East conflict and a deficient monsoon season, which has led to higher food prices. Analysts at Yes Bank predict the RBI may continue tightening, with a base case of a 50 basis point increase in policy rates, 25 basis points each in December and February.
As India imports nearly 90% of its energy needs, rising energy prices could further fuel inflation, affect the rupee, and strain government finances. The 1-year OIS rate rose 6 basis points to 6.59%, while the 2-year and 5-year rates increased by 5 and 6 basis points to 6.66% and 6.84%, respectively.
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