Indian government bonds retreated early Monday as traders braced for the central bank’s
Friday policy decision and as a lack of resolution in the Middle
East conflict pushed oil prices higher.
The benchmark 6.48% 2035 yield climbed 2 basis points to
7.0249% by 10:45 a.m. IST, after ending Friday at 7.0037%. The
yield had fallen 6 basis points last week, its biggest weekly
drop in seven weeks.
Brent crude futures rose 1.38% to $93.32 in Asian trading
after Israel deepened its push into Lebanon.
Israeli Prime Minister Benjamin Netanyahu said Sunday he had
ordered troops to advance against the Iran-backed Hezbollah
militant group, even as ceasing hostilities against Israel’s
northern neighbour is among Iran’s conditions for ending the
war.
For India, every $10 increase per barrel in oil prices can
add 700-800 billion rupees to the annual import bill, analysts
at Bajaj Mutual Fund said in a note.
The Reserve Bank of India’s monetary policy decision on June
5 also looms, with nearly 80% of economists in a May 22-29
Reuters poll expecting the repo rate to be held unchanged
despite growing calls for a hike.
Standard Chartered, Capital Economics, ANZ, MUFG and OCBC
are among those pencilling in an increase.
“I am of the wait-and-watch camp and I believe the oil
prices will drop in coming months,” said Alok Singh, head of
treasury at CSB Bank.
The RBI is set to refresh its inflation and growth
projections for the year ending March 2027, while investors will
also parse Friday’s January-March GDP data to gauge the impact
of the Iran war on the economy. Retail inflation could rise as a
result of recent fuel price hikes and weaker-than-normal
monsoon rains, the country’s finance ministry said in a report
on Saturday.
RATES
India’s overnight index swap rates surged on Monday as
traders priced in higher oil, which contributed to rate hike
bets.
The one-year swap was up 4 bps at 6.13%,
while the two-year and five-year rates
rose 5 bps each to 6.29% and 6.66%
respectively.