Societe Generale strategists report that the Reserve Bank of India's (RBI) recent measures to attract foreign portfolio investors (FPIs) are already having a significant impact on the Indian bond market, with yields falling across the curve and the five-year segment showing notable outperformance [1]. From Friday through Tuesday, benchmark yields eased by approximately 10 basis points, while the five-year yield dropped nearly 30 basis points, reflecting improved market sentiment and increased inflows [1].
Foreign banks have net purchased about $2 billion of Indian government bonds since June 5, underscoring the effectiveness of the RBI's policy actions [1]. Additionally, Indian banks are now offering 6%–7.1% interest rates on five-year USD deposits, a move reminiscent of the 2013 swap window that attracted $34 billion in inflows, indicating a strategic shift toward encouraging dollar inflows rather than relying on rate hikes or foreign exchange intervention [1].
Societe Generale notes that upcoming inflation and FX reserves data may have less influence on the market as the effects of the RBI's measures continue to unfold [1].
CONCLUSION
The RBI's recent initiatives have successfully attracted substantial foreign inflows, leading to a rally in Indian government bonds and a notable decline in yields. Market participants are focusing on the ongoing impact of these measures, with traditional data releases expected to play a secondary role in the near term.