Citi: India's rate hike expectations for the end of 2027 will be priced down to 60-65 basis points

Source: Global Market Broadcast

Citi strategist Rohit Garg wrote that following the Reserve Bank of India's monetary policy review meeting on Wednesday, the offshore swap market may lower the implied rate hike for India by the end of 2027 from around 80 basis points to 60‑65 basis points, or even less.

In the coming months, the yield on India’s 10-year government bonds may fluctuate around 6.75%.

In the mid to long term, concerns about global capital costs and competition for capital may bring a certain premium to the 10-year government bonds.

Inflow related to foreign currency non-resident deposits (FCNR) may, within about a month, support buying of overnight index swaps (OIS) or Indian government bonds, and this support may not be affected by changes in global yields.

Declining energy prices and a weaker US dollar will benefit Indian local currency assets.

Combined with inflows from foreign currency non-resident deposits and lower energy prices, the rupee is likely to gradually appreciate.

Citi believes that in the short term there is room for the rupee to strengthen to 1 USD to 94 rupees.