India bonds extend weekly slide; struggle to shake off RBI hike, hawkish stance shift

MUMBAI: Indian government bonds fell for an eighth straight week as elevated oil prices and a hawkish shift by the central bank dampened investor appetite, pushing the benchmark 10-year yield higher.

The benchmark 6.94% 2036 bond ended at 7.2994% on Friday, up from 7.2868% on Thursday. The yield rose 9 basis points this week, adding to a cumulative 45-basis-point rise over the previous seven weeks since August 17.

The Reserve Bank of India raised its repo rate by 25 basis points to 5.50% this week and shifted its policy stance to “calibrated tightening” from neutral, signalling the possibility of further rate hikes.

“Our long-held view is that RBI would turn hawkish as inflationary pressures start to build hence this shift is within our expectations. We have another 25 bps hike in our forecast profile through March 2027, with the risk skewed towards more rather less hikes,” said Lavanya Venkateswaran, executive director and senior ASEAN and India economist at OCBC Bank.

Most economists now expect India’s terminal repo rate to reach at least 6.00%, while Standard Chartered Bank and Goldman Sachs forecast the same at 6.25%.

Brent crude climbed above $105 a barrel this week as attacks on vessels intensified, before easing slightly after U.S. President Donald Trump said Washington was holding productive talks with Iran.

Higher oil prices pose risks to energy importer India, threatening government finances and potentially pushing up headline inflation beyond the direct impact of fuel costs.

Rates

India’s overnight indexed swap rates were broadly unchanged for the week, as easing US yields offset the impact of policy stance change.

The one-year OIS rate ended at 6.24%, the two-year rate closed at 6.44%, while the liquid five-year rate settled at 6.7250%.