The benchmark 6.94% 2036 bond yield jumped to 7.3707% by mid-morning in Mumbai, its highest level in three years, after the Reserve Bank of India announced a bond sale and a sharper cash reserve requirement that will drain rupees from the banking system. The move extends an eight-week run that has added 54 basis points to the yield, taking it from 7.2994% at Friday's close.
RBI shifts from words to action
Days after Governor Sanjay Malhotra told the policy meeting that surplus cash would be temporary and announced no liquidity-draining measures, the central bank said it will sell 250 billion rupees of bonds on Tuesday and raise the daily cash reserve requirement to 99% from 90% starting October 16. The about-face follows the first policy rate increase in nearly four years and a signal that more hikes are coming.
Oil keeps the pressure on
Brent crude has remained above $100 a barrel, a level that complicates the inflation outlook for an economy that imports most of its oil. The September retail inflation print is due later today; a Reuters poll expects a 5.4% year-on-year reading, which would keep price pressures above the RBI's target band.
Swap curve steepens at the front
Overnight indexed swap rates moved sharply higher, led by the shorter end. The one-year OIS rate reached 6.34%, the two-year 6.53%, and the liquid five-year 6.76%, reflecting the market's recalibration to tighter rupee liquidity and the prospect of further policy tightening.