A global squeeze on emerging market assets has forced the Reserve Bank of India to take actions that sometime appear at conflict with each other.To help cool rising bond yields, the central bank said late last week that it will buy bonds for the first time in 18 months, infusing cash into financial markets. That’s leading policy makers to warn of higher interest rates sooner rather than later -- a hawkish bias that is acting as an upward pressure on bond yields, which of course, the RBI is seeking to contain.The RBI isn’t alone in this conundrum. While inflation has eased in recent months, policy makers are wary of rising risks and have started to flag a possible interest rate hike this year. Foreigners have been selling Indian bonds, putting downward pressure on the currency.To counter that, the central bank has tapped foreign reserves to support the rupee. “We believe uncertainty around rate hikes and oil prices is still weighing on bond markets, and as such we maintain our neutral stance.”

Source: Economic Times May 10, 2018 09:11 UTC