In April, the Indian benchmark came under pressure, declining by 1.7% in net USD terms, against a backdrop of rising US Treasury yields and mounting inflation concerns.
Latest data showed Indian CPI inflation rising to 7.0% y/y in March, its highest for 17 months. This was driven by higher food prices and puts inflation above the top of the RBI’s 2-6% target range.
As a result, the central bank adopted a more hawkish stance as it said it was now prioritising inflation over growth. Although the RBI left its main policy repo rate unchanged at 4.0% for now, it did introduce a new Standing Deposit Facility which would form a higher floor to the interest rate corridor. Going forward, gradual policy rate hikes look likely, with the first repo rate hike coming at the next MPC meeting in June.