- Bond yields rose sharply after the minutes of the Reserve Bank of India’s (RBI) monetary policy meeting revealed a willingness among some members to consider raising interest rates amid inflation risks.
- RBI officials signaled potential rate hikes: Deputy governor Poonam Gupta said a case for a rate hike could emerge during the year, while executive director Indranil Bhattacharyya said the current pause did not imply an extended one.
- External members Ram Singh and Saugata Bhattacharya also flagged the possibility of policy recalibration or swift adjustments.
- The yield on the benchmark 10-year government bond rose as much as 0.9 per cent to 6.87 per cent, while the five-year yield climbed 1.02 per cent to 6.51 per cent.
- Several brokerages advanced their rate-hike expectations: Morgan Stanley expects the cycle to start in December 2026 with cumulative hikes of 75 basis points to 6 per cent; Citigroup expects 50 basis points from December with a possible additional 25 basis points; Goldman Sachs expects quarter-point hikes in December and February; Nomura said the minutes challenged its expectation of an extended pause.
Bond yields rose sharply on Friday after the Reserve Bank of India (RBI) released minutes from its monetary policy meeting, revealing a readiness among members to consider interest rate hikes due to inflation risks.1
Deputy Governor Poonam Gupta indicated that a case for a rate hike could emerge this year, while Executive Director Indranil Bhattacharyya emphasized that the current pause in rate adjustments does not suggest a prolonged halt.
The yield on the benchmark 10-year government bond increased by 0.9 per cent to 6.87 per cent, while the five-year yield climbed 1.02 per cent to 6.51 per cent. Shorter-tenure securities experienced even sharper movements, with three-month, six-month, and one-year yields rising 1.33 per cent, 0.69 per cent, and 1.68 per cent, respectively.
The RBI's next policy meeting is scheduled for October 5-7, but many analysts, including Upasana Chachra from Morgan Stanley, anticipate that the rate hike cycle may begin in December 2026, with cumulative hikes of 75 basis points expected, raising the rate to 6 per cent.
Citigroup has also revised its forecast, now expecting 50 basis points of tightening from December, with a potential additional 25-basis-point increase if real interest rates are deemed too low. Goldman Sachs predicts quarter-point hikes in December and February, while Nomura noted that the minutes challenge expectations of an extended pause.
“The 10-year yield climbed 0.9% to 6.87%, while shorter-tenure yields rose up to 1.68%. Morgan Stanley now expects the first hike in December 2026 with cumulative 75 basis points, and Citigroup sees 50 basis points from December.”
