10-Year Bond Yield Hits 3-Year High As RBI Begins Its 2nd MPC Meet For Fy23

India's sovereign 10-year bond yields today has risen to 7.512% at day's high and hit a three year high. The steep rise has come as the RBI begins its monetary policy meet today. Last at around 1:36 pm, the yield held at 7.51%.

As per economist polled, there is a view that repurchase or repo rate- the rate at which RBI lends money to commercial banks will see a hike by 50 bps. 1 bps is one-hundredth of a percentage point.

So, far this year because of global liquidity tightening measure as well as the RBI's off cycle rate hike, there has been a hike in bond yield by over 100 bps.

There is a view that given the soaring crude prices there shall be more of imported inflation and this shall nudge the RBI to go on a quick rate hike path.

"We expect the RBI to hike repo rate by 40 bps in the June policy meeting. However, we should be open for a rate hike between 35-50 bps hinging on how the MPC wants to reach the pre-pandemic repo rate of 5.15% or around that mark by the end of the August policy. The RBI is likely to hike the CRR in one of the upcoming policies but will be contingent on how it sees the the durable liquidity panning out over the next few months," said Suvodeep Rakshit, Senior economist at Kotak Institutional Equities.

"We expect another 50 bps of CRR hike by end-FY2023. Along with the repo rate hike, the RBI will also revise its inflation estimates higher, possibly indicating inflation remaining close to 7% for most part of CY2022. We expect the RBI to continue focusing on taking inflation and signaling its intent to continue raising rate and normalising liquidity, while not entirely losing its on growth given the uneven nature of growth recovery."

Last month, in a surprise move, the RBI raised its main lending rate off record lows to 4.40%, in its first change in the rate in two years and its first rate hike in nearly four years. The central bank also raised banks' cash reserve ratio (CRR), or proportion of deposits that banks need to set aside with the RBI as cash, by 50 basis points to 4.50% effective from May 21.

"Based on inflation data and external factors, including oil and commodity prices, expect a total of 100 to 150 bps increase in repo rate from the current 4.40%. However, it is important that fiscal and monetary policies move in tandem to bring inflation within targeted levels and provide support to economic growth."