Indian rupee snaps 11-week losing streak as RBI steps in

Indian bond yields edged lower on Friday, tracking their U.S. peers’ slide after a bigger-than-expected hike by the European Central Bank (ECB) brought the focus back onto a possible global recession.

India’s benchmark 10-year bond yield ended trading at 7.41 percent compared to its close of 7.44 percent on Thursday. On the week, the 10-year yield fell 2 basis points.

U.S. Treasury yields fell on Thursday, with the benchmark 10-year note below 2.9 percent, weighed by soft economic data and after the ECB’s first interest rate hike in 11 years.

Traders said Indian bond yields had been trading in a tight band amid mixed global triggers and the upcoming monetary policy review in early-August.

DBS said in a note that despite recent signs suggesting inflation may have peaked, it was premature to go easy on inflation as a past RBI study had shown that a 5 percent depreciation in the rupee versus their baseline projection could push inflation higher by roughly 20 basis points and vice versa.

The RBI’s baseline rupee projection was at 76 per dollar as per the monetary policy report published in April.

"This also explains the central bank’s preference to anchor the exchange rate so as not to aggravate supply-side price pressures,” Radhika Rao, an economist with DBS said.

DBS now expects a 35 basis points increase in the key rate by the RBI at its August meeting versus 50 bps earlier.