India bond yields climb to highest in 3 years as RBI committee starts meeting
PremiumBond traders are concerned higher oil prices will add to India’s already elevated inflation and push the central bank toward more aggressive rate hikes.
India’s sovereign bond yields breached the 7.5% level for the first time in three years as the central bank’s rate-setting panel began its three-day meeting. The benchmark 10-year yield rose as much as four basis points to 7.5%, a level last seen in 2019. Yields have jumped by more than 100 basis points in 2022 amid global tightening and as the Reserve Bank of India turned hawkish with an out-of-turn rate hike last month.
Bond traders are concerned higher oil prices will add to India’s already elevated inflation and push the central bank toward more aggressive rate hikes. The nation relies on imports to meet about three quarters of its oil needs, and higher prices threatens to accelerate inflation that has stayed above the higher end of the RBI’s 2%-to-6% target for four consecutive months.
India’s swap curve is pricing in at least 50 basis points of rate hikes at every scheduled meeting this year before slowing to 25 basis points in 2023, Barclays strategists including Ashish Agrawal wrote in a note. “We are positioned for underdelivery of hikes but weak demand for duration."
The RBI will decide on its rate decision on Wednesday and a majority of economists surveyed by Bloomberg predict a 50 basis-point increase in the repurchase rate.
“The MPC has signalled a gradual withdrawal of accommodation in light of higher inflation. It is likely that the RBI's stance will be “Neutral" while it will stay committed to bringing back inflation closer to the targeted levels through all possible instruments. I expect a rate hike between 35-50 basis points in the June policy," said Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd.
"Based on inflation data and external factors, including oil and commodity prices, expect a total of 100 to 150 bps increase in repo rate from the current 4.40%. However, it is important that fiscal and monetary policies move in tandem to bring inflation within targeted levels and provide support to economic growth."