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US bond yields are rising, and India is feeling the heat, just like most other global markets. The US bond yield surged to a 19-year high above 5% recently. Motilal Oswal believes the rise in global yields will keep Indian borrowing costs elevated and limit the scope for a significant decline in domestic bond yields.
The brokerage firm also said that, along with US bond yields, India’s economy is facing risks from elevated crude oil prices.
expects the Reserve Bank of India (RBI) to raise interest rates by 75-100 basis points in the current cycle if crude oil prices remain elevated and inflation expectations rise. All eyes are on the upcoming RBI Policy meeting next month.
Indian bond yields may remain elevated
India’s 10-year government bond yield has moved to around 7% as a result of the hardening seen in US Yield. Motilal Oswal expects the domestic yield to remain in the 7-7.2% range for the rest of FY27.
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“Financial conditions in India are already becoming tighter through higher bond yields, liquidity absorption and higher global borrowing costs, even before a formal repo-rate hiking cycle begins,” Motilal Oswal noted.
Crude oil could add to inflationary pressure
Higher crude prices remain a concern for India. The brokerage house believes it could put further pressure on the inflation outlook by increasing transportation and other input costs.
Motilal Oswal noted that although August inflation remains manageable, food inflation is close to 6%. Looking at this backdrop, the brokerage expects retail inflation to rise above 6% in Q3FY27.
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Motilal Oswal has also retained its FY27 inflation forecast at 5.1%, slightly above the RBI’s 5% projection.
RBI rate hike outlook
RBI could consider raising interest rates if crude oil prices remain high and inflation expectations increase.
Under a sustained oil shock, the brokerage sees the possibility of 75-100 basis points of cumulative rate hikes in the current cycle.
This would mark a shift in India’s monetary policy environment, as higher inflation and global borrowing costs could reduce the room for easier financial conditions.
How would higher rates impact Indian sectors
Higher interest rates could affect sectors differently. Banks could be relatively better placed because they can reprice floating-rate loans, while banks with stronger deposit franchises could get some support against higher funding costs.
NBFCs could face greater pressure because of their higher dependence on wholesale funding and refinancing. Real estate, automobiles and consumer durables could also be more sensitive to higher borrowing costs.
Overall, Motilal Oswal expects India to operate in an environment of tighter financial conditions and a higher cost of capital, with the impact varying across sectors and companies.
TOPICScrudeCrude oilECONOMYeconomy newsRBIReserve Bank of IndiaUS Bond Yield + 0 MoreThis article was first uploaded on September twenty-four, twenty twenty-six, at forty-one minutes past four in the afternoon. © IE Online Media Services (P) Ltd