Home / Markets / Commodities /  India bond yields spike after RBI policy, rupee rebounds against US dollar

Indian government bond yields rose beyond 7.3%, giving up some of the recent days of gains after the RBI raised lending rates by 35 basis points and sounded hawkish over inflation outlook. The benchmark 10-year yield was at 7.301% as compared to 7.2486% on Tuesday. Bond yields had eased to 7.2113% before the policy decision, tracking a slump in oil prices as the benchmark Brent crude futures declined below $80 a barrel. The Indian rupee however recovered to edge higher against the US dollar.

As expected, the RBI hiked repo rate by 35 basis points but said that there would be no let-up in its fight to tame high inflation. The central bank kept its inflation projection for the current financial year unchanged at 6.7% but the RBI governor said that "the medium-term inflation outlook is exposed to heightened uncertainties from geopolitical tensions, financial market volatility and the rising incidence of weather-related disruptions."

"The RBI MPC raised repo rate by 35 basis points to 6.25% with 5-1 vote. The stance remained focused on withdrawal of accommodation. While this was ours as well market consensus, it seems like we may not be fully done with the rate hiking cycle. The inflation guard continues to remain. Key to now track FOMC outcome in the coming week. Expect bond markets to give up some gains and trade range bound as global growth concerns dominate," said Lakshmi Iyer, CEO- Investment Advisory, Kotak Investment Advisors Limited. 

The RBI also lowered its GDP growth forecast by 20 bps to 6.8%. The Indian rupee was trading higher at 82.4987 against the US dollar, rebounding from day's lows of 82.77. Rupee had settled at 82.61 on Tuesday.

The Indian rupee should be allowed to find its level and it was important to make an objective assessment of the moves on the currency, the Reserve Bank of India Governor Shaktikanta Das said today. 

"In this complex world, with both push and pull factors at play, the INR - which is market-determined - should be allowed to find its level and that is what we have been striving to ensure," Das said, while announcing the central bank's monetary policy decision to raise its key lending rate by 35 basis points (bps).

For the calendar year so far, the rupee is down about 11% against the dollar. The currency dropped below 83 to the dollar to hit a record low in October.  (With Agency Inputs)

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