Indian government bonds are likely to weaken on Thursday after RBI policy minutes hinted at more rate hikes to control inflation. The benchmark 6.94% 2036 bond yield may trade between 7.40% and 7.47%. Analysts at Yes Bank said, "Our base case remains for an incremental 50 bps increase in policy rates."
Benchmark 6.94% 2036 bond yield may trade between 7.40% and 7.47%, trader at a primary dealership says
Indian government bonds are likely to weaken further in early deals on Thursday, after minutes of the latest monetary policy meeting showed that members of the rate-setting panel indicated further rate hikes may be needed to curb inflation.
The benchmark 6.94 per cent 2036 bond yield may trade between 7.40 per cent and 7.47 per cent, according to a trader at a primary dealership, after closing at 7.4427 per cent in the previous session.
The Reserve Bank of India's Monetary Policy Committee had raised the repo rate by 25 basis points to 5.50 per cent earlier this month, its first hike in nearly four years. It also shifted its stance to "calibrated tightening" from "neutral", hinting at more hikes to come.
A sharp rise in oil prices due to war in the Middle East and a deficient monsoon rain season have sparked a jump in food prices, stoking inflation worries and prompting markets to price in a little over 100 bps of hikes in the next 12 months.
With oil continuing to exhibit an upside bias and more signs of generalisation of inflation pressures seen in the September inflation print, the RBI may continue tightening, analysts at Yes Bank said in a note.
"Our base case remains for an incremental 50 bps increase in policy rates - 25 bps each for December and February."
Meanwhile, the benchmark Brent crude contract stayed above $110 per barrel, as more attacks by the Houthis on Saudi Arabia prompted the United States to order some diplomats and family members to leave its missions in the Kingdom.
India is particularly vulnerable to elevated energy prices as it imports nearly 90 per cent of its requirement. Consistently elevated prices risk feeding into the nation's inflation trajectory, impacting the rupee and government finances.
Rates
India's overnight indexed swap (OIS) rates are expected to trend higher, in line with bond yields and oil prices.
The 1-year OIS ended 6 bps higher at 6.59 per cent, while the 2-year rate rose 5 bps to 6.66 per cent and the 5-year rate settled at 6.84 per cent on Wednesday.