RBI status quo on rates triggers India bonds sell-off; 10-year yield jumps most in 2 years

India's 10-year benchmark bond yield jumped the most in nearly two years on Wednesday, as traders who anticipated further easing or a dovish tone from the central bank sold off debt following its decision to keep rates unchanged.

The Reserve Bank of India held its key policy rate steady on Wednesday, as the policymakers opted for a wait-and-watch approach to see the impact of the previous rate cuts on the economy.

Traders with dovish bets pared positions after the policy as they recalibrated their expectations for future rate cuts, triggering the steepest rise in 10-year yield (IN063335G=CC) since October 6, 2023.

The 10-year closed at 6.4162%, 8 basis points higher compared with Tuesday's close of 6.3321%. Yields move inversely to prices.

"We expect a challenging external environment, high U.S. tariffs, and weakening domestic activity indicators will result in growth below the forecast, testing the RBI’s confidence," said ANZ Bank, which had expected a rate cut.

"We are retaining a 25-bp rate cut in our forecast trajectory for now, pushing it to October 2025."

Bond market participants will closely watch for any developments on the global trade front to gauge its impact on the nation's economy.

RBI Governor Sanjay Malhotra also expressed concern around global growth, but said the prospects for the Indian economy still remain "bright".

While the RBI maintained its growth forecast at 6.5%, it revised its inflation outlook to 3.1% for FY26, versus the previously predicted 3.7% rise.

RATES

India's overnight index swap rates saw strong paying interest as the RBI's status quo on rates dimmed hopes of further rate cuts, prompting traders to reverse receiving bets.

The one-year OIS rate (INR1YMIBROIS=CC) ended nearly 7 basis points higher at 5.5075%, and the two-year OIS rate (INR2YMIBROIS=CC) rose 8 bps to 5.47%.

The liquid five-year OIS rate (INR5YMIBROIS=CC) rose by nearly 7 basis points to 5.7025%.