RBI Rate Hike Odds Skyrocket on Surging Oil Prices and Inflation
Traders are increasingly betting on an October rate hike by the Reserve Bank of India (RBI), amid surging oil prices and broadening inflation. The one-year overnight index swap rate rose 8 basis points to 6.11%, its highest since early June, while the five-year rate jumped 11 bps to 6.68%. The one-month OIS, a more direct gauge of October rate expectations, rose 10 bps to 5.34%.
Analysts at Citi and Deutsche Bank have brought forward their rate-hike calls to October from December, citing accelerating inflation and an imminent Federal Reserve hike cycle. Citi analyst expects September inflation to rise to 5.7%, near the RBI's 6% upper tolerance limit, making it harder for the central bank to keep rates unchanged.
The risk of prolonged energy-price pressures is strengthening bets that the RBI will need to hike rates sooner. Brent crude is up more than 18% over the past two weeks, hitting nearly $110 a barrel on Monday. The RBI has yet to respond to the oil shock with a rate hike, unlike other oil-sensitive Asian economies.