MUFG sees modest rise in India bond yields as RBI holds rates, near end of easing cycle

MUFG anticipates a gradual rise in India’s 10-year bond yields through 2026 as the RBI nears the end of its rate-cutting cycle while aggressively managing liquidity. The forecast suggests yields will reach approximately 6.60% by March and 6.75% by year-end, with current levels around 6.65%. This upward bias reflects a transition from easing to prolonged rate hold. MUFG believes the RBI will maintain the repo rate at 5.25% for an extended period, prioritizing stability over premature tightening amid contained inflation risks and stable growth. Liquidity management will remain active, with expectations for the RBI to inject liquidity through bond purchases and FX swaps. The current USD/INR trading around the 90.30 area suggests ongoing interventions to stabilize the rupee, which will be influenced more by global dynamics than domestic yields.