The RBI will announce its policy on June 8. Analysts expect a 50bps hike in the repo rate to 4.9 percent this week and 25bps in August to reach the first milestone of the pre-pandemic level of 5.15 percent
The 10-year bond yields on Monday soared to the 7.5-percent mark for the first time in nearly three-and-a-half years as rising crude prices fuelled concern over inflation. Traders are also waiting for the Reserve Bank of India’s bi-monthly policy decision later this week and its commentary over inflation and growth.
The bond yield hit 7.5 percent – a level last seen on January 11, 2019, up 5 basis points from its previous close of 7.457 – and prices moved in opposite directions.
Saudi Arabia raised oil prices for its biggest market of Asia by more than expected as main Asian economies eased Covid restrictions, helping boost demand. Crude extended gains to the highest to a three-month high.
The RBI will announce its policy on June 8. Analysts expect a 50 basis points (bps) hike in the repo rate to 4.9 percent this week and 25bps in August to reach the first milestone of the pre-pandemic level of 5.15 percent. Further CRR increases are on the cards to lower the liquidity surplus and aid transmission.
“Besides the rate move, economic forecasts are likely to be revisited, resulting in an upward revision in inflation and tempering of growth expectations. Commentary is likely to highlight the need for vigilance on the inflation trajectory, as risks spread from fuel to food, whilst acknowledging the host of relief measures enacted by the government,” said Radhika Rao, economist at DBS Bank.
The government has taken several fiscal relief steps in recent weeks, spanning from export bans, custom duty cuts and excise duty cuts on fuel to tackle inflation; however, analysts expect these measures unlikely to derail rate hikes.
“Inflation has proved to be persistently high in the past three years, even as drivers have changed – from supply bottlenecks to commodities and reopening pressures. Nonetheless, uncertainty over the path ahead is likely to see the terminal policy rate stay data-dependent, with our forecast for the level to be around 6-6.15% by mid-2023,” Rao said.
Traders are also awaiting the US Fed meeting around middle of this month. Friday US job data showed a slowdown in hiring that gave the Federal Reserve room to continue hiking interest rates as it struggles to contain surging inflation.
(Bloomberg contributed this story)