Indian bond yields: Benchmark yield tops 7.30% as RBI hikes rate, sounds hawkish on inflation

The benchmark 10-year yield was at 7.3087% as of 11:10 a.m. IST. It was at 7.2113% before the policy decision and had ended at 7.2486% on Tuesday.

Bond yields had dipped earlier in the session, tracking a slump in oil prices as the benchmark Brent crude futures declined below $80 a barrel.

While the quantum of the monetary policy committee’s (MPC) rate increase was widely expected, the central bank vowed there would be no let-up in its fight to tame high inflation.

“The statement tilted on the hawkish side, and hence benchmark bond yield is back to 7.30% levels,” a trader with a state-run bank said.

The MPC, comprising three members from the RBI and three external members, raised the key lending rate or the repo rate to 6.25% in a majority decision.

Five of the six members voted in favour of the increase.

A Reuters poll had predicted the central bank to hike rate by 35 bps and a strong two-thirds majority in a Reuters poll said it was still too soon for the central bank to take its eye off inflation, which slowed to 6.77% in October but has stayed above the upper end of the RBI’s 2-6% tolerance band all year.

The central bank kept its inflation projection for the current financial year unchanged at 6.7%, but lowered its growth forecast by 20 bps to 6.8%.

“The medium-term inflation outlook is exposed to heightened uncertainties from geopolitical tensions, financial market volatility and the rising incidence of weather-related disruptions,” Governor Shaktikanta Das said.