Indian bonds steady after RBI minutes signal more rate hikes

Indian bonds were nearly unchanged with the benchmark yield around 7.45% levels early on Thursday, after minutes of the latest policy meeting showed that members of the rate-setting panel indicated more hikes may be needed to curb inflation.

The Reserve Bank of India raised the repo rate to 5.50% earlier this month, its first hike in nearly four years, and shifted its stance to "calibrated tightening" from "neutral", hinting at more hikes.

RBI Governor Sanjay Malhotra's recent comments that hint at interest rate defence of the currency have fuelled market expectations of an outsized rate hike in December, Nomura said.


"We maintain our view of an additional 25bp hike in December, followed by an extended policy pause, although the February meeting remains live."

India's benchmark 6.94% 2036 bond yield was at 7.4474% as of 10:00 a.m. IST, after closing at 7.4427% in the previous session. The yield has risen 69 basis points over the last 10 weeks. Yields move inversely to prices.

A sharp rise in oil prices due to an escalating war in the Middle East and a deficient monsoon season have sparked a jump in food prices, stoking inflation worries.

This has led to expectations that the key price gauge would rise above 6% in October, the upper tolerance band of the central bank's target.

The Brent crude contract stayed above the $110 per barrel mark, as more attacks by the Houthis on Saudi Arabia prompted the United States to order some diplomats to leave its missions in the Kingdom.

India is particularly vulnerable to elevated energy prices as it imports nearly 90% of its requirement. Consistently elevated prices risk feeding into inflation, impacting the rupee and government finances.

Rates

India's overnight indexed swap rates were mixed in early deals.

The 1-year OIS was a tad lower at 6.57%, while the 2-year rate was up at 6.67%. The liquid 5-year rate was little changed at 6.83%.