RBI Scales Back Support for Indian Rupee and Bonds
The Indian rupee and bonds weakened as the central bank scaled back support. Markets remain volatile amid rising oil prices and the Middle East conflict.
The perceived reduction in central bank intervention has triggered a sharp selloff in the financial markets of India, leaving investors concerned about heightened volatility as regional tensions involving Iran persist. On Monday, government bond yields experienced a significant spike, with the 10-year benchmark jumping 15 basis points to its highest level in over a year. This upward movement in yields continued even as global oil prices saw a slight retreat, suggesting a shift in market dynamics.
The Indian rupee also faced substantial downward pressure, hitting a record low near 94 against the U.S. dollar. While the currency managed a minor recovery on Tuesday, market participants are increasingly worried about a potential exodus of foreign capital and rising demand in the non-deliverable forward markets. Previously, the currency had maintained a level around 92.50 with the support of the Reserve Bank of India (RBI), but the breach of this threshold has intensified market anxiety.
