FX.co ★ India 10-Year Yield Rises Ahead of RBI Decision

The yield on India’s 10-year government security (G-Sec) climbed toward 7.1%, a one-week high, as investors turned cautious ahead of the Reserve Bank of India’s monetary policy announcement later this week. Markets broadly anticipate that the benchmark repo rate will be held at 5.25%, but uncertainty over the inflation trajectory and future policy guidance continued to weigh on bonds. Since the onset of the Iran conflict three months ago, the 10-year yield has risen by about 34 basis points to around 7.0%, highlighting expectations of tighter financial conditions. Fiscal worries have added to the upward pressure, with elevated crude oil prices likely to push up fuel and fertilizer subsidy costs and risk widening the fiscal deficit beyond the government’s 4.3% of GDP target. At the same time, persistent foreign outflows from Indian equities have weakened the rupee and compounded pressures on the domestic debt market.