FX.co ★ Indian 10-Year Yield Holds Lower

In late July, the yield on India's 10-year government securities hovered around the 6.3% mark, a level close to its lowest since 2021. This stability can be attributed to the Reserve Bank of India's dovish stance and diminished credit risk thanks to India’s cautious fiscal strategy. Recent inflation data revealed that headline inflation dipped to a six-year low of 2.1% in June, significantly undercutting market forecasts of 2.5% and nearing the lower threshold of the RBI's 2% inflation tolerance range. Meanwhile, Indian authorities have indicated that the prospect of finalizing a trade agreement with the United States by August appears slim, raising potential risks for domestic exports in the face of U.S. warnings to BRICS members and nations that re-export Russian goods. The combination of subdued inflation and growth concerns contributes to the expectation that the RBI will maintain its current cycle of rate cuts throughout the year. Additionally, recent figures highlighted a reduction in India's budget deficit for the ongoing fiscal year as of May, driven by an increase in government revenues that surpassed the spike in expenditures.