In an unscheduled meeting, the Reserve Bank of India (RBI) just hiked policy rates by 40bp to 4.4%. Indian bonds sold off, INR rallied and equities fell on the decision. In the view of economists at TD Securities, stabilization in oil prices and likely higher yields will likely give the Indian rupee more comfort in the short term.

More hikes in the months ahead

“In a surprise inter-meeting move, the RBI hiked its repo rate by 40bps to 4.40% while maintaining an accommodative stance, in a move revealing renewed urgency to clamp down on price pressures.”

“We think this will be followed up by further hikes in the months ahead, with the RBI likely to hike again at its meetings in June and August and subsequent meetings given low real rates.”

“We expect more pressure on bonds amid a further reassessment of tightening expectations, while the stabilization in oil prices and likely higher yield will likely give the INR more comfort.”