Indian bonds steady near 7.45% as RBI minutes flag more hikes

India’s benchmark government bond yield held close to 7.45% early on Thursday, October 22, as minutes of the Reserve Bank of India’s latest policy meeting indicated that further interest-rate increases might be needed to contain inflation, Economic Times Markets reported.

The benchmark 6.94% bond maturing in 2036 yielded 7.4474% at 10:00 a.m. IST, compared with 7.4427% at the previous close. The small move followed a cumulative rise of 69 basis points over 10 weeks. Bond prices fall when yields rise.

December hike expectations remain in focus

The RBI raised its repo rate to 5.50% earlier this month, its first increase in nearly four years, according to the report. It also moved its policy stance from neutral to calibrated tightening, signalling scope for additional increases.

Nomura said recent remarks by RBI Governor Sanjay Malhotra, interpreted as suggesting that interest rates could be used to support the currency, had strengthened market expectations of a larger December increase. The firm’s own forecast remained a 25-basis-point hike in December, followed by an extended pause, although it did not rule out action at the February meeting.

Those are expectations rather than an announced policy decision. The meeting minutes indicated that more tightening could be necessary; they did not establish the size or timing of the next move.

Oil and food prices add to inflation pressure

The report linked inflation concerns to an oil-price surge amid an escalating Middle East war and higher food prices following a deficient monsoon. It said these pressures had prompted expectations that the key inflation measure would exceed 6% in October, above the upper tolerance limit of the RBI’s target range.

Brent crude remained above $110 a barrel. The report also described further Houthi attacks on Saudi Arabia and a US order for some diplomats to leave its missions in the kingdom.

India imports nearly 90% of its oil requirement, leaving the economy exposed to persistently expensive crude. Higher import costs risk adding to domestic inflation while putting pressure on the rupee and government finances.

Swap rates show a mixed response

Overnight indexed swap rates did not move uniformly in early trading. The one-year rate edged lower to 6.57%, the two-year rate rose to 6.67%, and the actively traded five-year rate was broadly unchanged at 6.83%. These readings and the benchmark bond yield are reported market snapshots, not live prices.