The Reserve Bank of India lifted its policy repo rate by 25 basis points to 5.50% on Thursday, its first increase in nearly four years. The central bank also shifted its stance from "neutral" to "calibrated tightening", signalling a shift toward a more data‑driven approach to future hikes.
Governor Sanjay Malhotra said the change would bring a "milder form of tightening", while the RBI bumped its overall inflation outlook by 20 basis points to 5.2% and core inflation to 4.4% from 4.3%.
Bond markets responded with a slight uptick; the 6.94% 2036 benchmark yield is expected to trade between 7.21% and 7.25%, having closed at 7.2410% on Wednesday.
A primary dealership trader told Reuters that unless a fresh open‑market sale is announced, the 10‑year benchmark should hold around the 7.25% level.
The RBI did not announce new measures to reduce surplus liquidity, despite market expectations; its last bond sale in September was a record 1 trillion rupees, the biggest in at least a decade.
Indian overnight indexed swap rates are poised to remain tight, with the one‑year OIS at 6.25%, the two‑year at 6.4525% and the five‑year at 6.7225%.