The yield on India’s 10-year government security (G-Sec) has climbed to about 7.45%, its highest level since March 2023, as persistently elevated crude oil prices intensify inflation worries and bolster expectations of further interest rate hikes. Brent crude is nearing $112 per barrel—its highest in five months—driven by Red Sea shipping disruptions and threats to Saudi oil infrastructure. This has amplified concerns about India’s import bill, pressure on the rupee and the strain on government finances.
Consumer inflation accelerated to 5.54% in September, and many economists now expect price pressures to breach the Reserve Bank of India’s upper tolerance band in October. The RBI’s recent shift to a “calibrated tightening” policy stance has further cemented expectations of additional monetary tightening, with swap markets factoring in roughly 100 basis points of rate hikes over the next 12 months, including a possible 50-basis-point increase in December. Investors are closely watching for the minutes of the RBI’s October policy meeting, due later on Wednesday, for clearer guidance on the future path of rates.
