Government securities (G-Secs) rallied on Wednesday as RBI Governor Sanjay Malhotra said it is premature to talk about a rate hike and Brent crude oil price fell to below $76 a barrel.
Yield of the new 10-year benchmark G-Sec (6.94 per cent GS2036) softened 5 basis points to close at 6.78 per cent against the previous close of 6.83 per cent. Price of this security rose 35 paise.
Yield and price of a bond are inversely co-related and move in opposite directions.
RBI Governor Sanjay Malhotra said it would be premature to talk about a rate hike even as external uncertainty is weighing on the rate-setting monetary policy committee (MPC).
In an interview to ET Now, Malhotra said: “If it was so certain that we are going to hike (the repo rate) in the coming months, then we would have changed the stance from neutral to restrictive. We did not do that.
“We did not do that precisely because there is elevated uncertainty. So I think it will be premature to talk about a rate hike. What we have said is that we are cautious.”
The Governor observed that if the MPC was sure about the second round effects of inflation, it would have acted.
Brent crude oil price declined to $75 a barrel as the arterial shipping route – the Strait of Hormuz – is gradually opening up after the US and Iran signed an interim agreement to end the West Asia conflict.
Venkatakrishnan Srinivasan, Founder & Managing Partner, Rockfort Fincap LLP, observed that the rally in the new benchmark 10-year G-Sec has been driven by a combination of improving foreign investor sentiment, softer crude oil prices and the RBI’s reassuring policy communication.
He underscored that strong FPI inflows into Indian debt markets this month, supported by various RBI and government measures aimed at attracting foreign capital and containing rupee volatility, have provided an important demand boost for G-Secs.
At the same time, the RBI Governor’s remarks that it is premature to discuss rate hikes have reinforced market expectations that policy tightening is not an immediate concern.
“The sharp correction in Brent crude prices to around $75 per barrel has also improved the outlook for India’s inflation trajectory, current account deficit and currency,” Venkatakrishnan said.
He noted that the outlook for G-Secs remains constructive, but the current rally is being driven more by improving sentiment and favourable external developments than by a fully settled macroeconomic backdrop.
Venkatakrishnan opined that the new benchmark paper could remain well supported in the near term if foreign inflows continue, crude prices remain contained and inflation stays under control. However, global bond yields, geopolitical developments, monsoon outcomes and domestic liquidity conditions will continue to determine the extent of any further decline in yields.
Rupee bounces back
The rupee bounced back after hitting an intraday low of 94.91 per US Dollar, supported by RBI intervention and FPI-related inflows into the debt market.
The Indian currency closed 7 paise higher at 94.6650 per USD against the previous close of 94.7350.
Radhika Rao, Senior Economist & Executive Director, DBS Bank, said the Rupee has retained its recent gains, while foreign investors have turned constructive on INR debt, with inflows exceeding $3 billion since April 2026.
“Sentiment has been supported in part by expectations that Indian government bonds could be considered for inclusion in Bloomberg’s global bond indices. We expect the next leg of gains in the INR bonds and currency on a pickup in non-resident deposit and offshore borrowings, spurred by the concessional swap facilities,” she said.