FX.co ★ Indian 10-Year Yield Rises Further

In August, the yield on the Indian 10-year government securities edged closer to the 6.4% level, spurred by escalating trade tensions with the United States and a subsequent depreciation of the rupee, which negatively impacted the appeal of domestic assets. US President Trump has introduced tariffs of 25% on Indian imports and has warned of further sanctions if India continues its engagement with Russian energy imports and exports. The potential for slower economic growth was underscored by Prime Minister Modi's indications that Indian refineries would maintain partnerships with suppliers offering the most advantageous inputs, raising the possibility of a trade confrontation. These developments led the rupee to hit unprecedented lows, counteracting the recent optimism regarding India's fiscal balance and prompting foreign investors to reduce their holdings in Indian fixed-income securities. Concurrently, as anticipated, the Reserve Bank of India (RBI) maintained interest rates in August, though an additional rate cut is anticipated within the year. In June, headline inflation declined to 2.1%, marking a six-year low and nearing the lower limit of the RBI's inflation target range of 2%.