Mumbai: India’s inflation is jolting the nation’s bond market again. After a gauge of price increases accelerated more than expected Monday, the average yield on the most liquid short rupee-denominated corporate notes climbed to the highest since March 2016.

Investors see borrowing costs going even higher, and soon.

“Inflation coming higher is not the end of bad news, there is more in store," said Mahendra Jajoo, head of fixed income at Mirae Asset Global Investments (India) Pvt in a phone interview. “Forward projections suggest inflation will remain high due to the rise in crude oil prices."

Triple A rated three-year bonds from state-owned companies climbed to 8.3% on Monday, after the statistics ministry said that consumer prices for April rose 4.6% from a year earlier, higher than the 4.4% median estimate in a Bloomberg survey.

Jajoo expects three-year AAA rated company bond yields to rise to 8.40%-8.5% levels in the next two months, and sees the central bank tightening monetary policy next month, as core inflation is close to 6%.