The yield on the 10-year government securities rose by 5 bps in early trade on June 13, after a sharp jump in crude oil prices prompted a rush to risk off assets, as tensions between Israel and Iran flared up after a strike on Tehran’s key installations.
The 10-year benchmark bond was at 6.396 percent in early trade as compared to 6.364 percent at open and 6.344 percent at previous close.
After the tensions between Israel and Iran escalated, Brent oil futures surged as much as 12 percent to close $77 per barrel, as per Bloomberg data.
Usually, when crude prices rise, they have an impact on domestic inflation due to the heavy reliance on imported oil. This dependency means that rising oil prices could lead to higher costs across various industries, ultimately driving up inflation.
Currently, the CPI inflation is way below RBI’s medium-term target of 4 percent. India’s retail inflation eased to a 75-month low of 2.82 percent in May, compared with 3.2 percent in April, as food inflation eased below one percent for the first time in nearly four years, according to government data released on June 12.
This is the fourth consecutive month that headline inflation has remained below the Reserve Bank of India’s (RBI) mid-point of 4 percent. Food inflation, which has a significant weight in the consumer price index, has stayed below 3 percent for three consecutive months.
“Sectors that uses oil derivatives as inputs like aviation, paints, adhesives and tyres will be hit hard. Oil producers like ONGC and Oil India will remain resilient,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
Earlier on June 13, Israel launched ‘Operation Rising Lion’, a coordinated military campaign targetting what it describes as a threat to its ‘very survival’ posed by Iran. The strikes, which began late Thursday night, targeted Tehran and key sites linked to Iran's nuclear and missile programs.
Explosions were reported across the Iranian capital, with Iran's state-run news agency confirming the blasts. Israeli Prime Minister Benjamin Netanyahu said the airstrikes were aimed at key parts of Iran's nuclear and military program.
These strikes come at the time when Trump administration is trying to make a deal with Iran to limit its nuclear activity. US secretary of state Marco Rubio made it clear the US was not involved. He also added that Israel acted on its own.
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