Rising US bond yields signal potential RBI rate hike

The central bank currently walks a tightrope between protecting a robust domestic credit market and managing external financial stability. While industry credit growth has reached nearly 20%, supporting an economic expansion projected at 7.1% to 7.4% for the year, the allure of Indian assets is fading. As US yields climb, the premium for global investors shrinks, risking a reversal of portfolio inflows that have already shown signs of fatigue.

Majumdar notes that while an October hike remains uncertain, a move in December is increasingly plausible to anchor inflation. The bank must weigh these risks against the potential to stymie the credit growth that has revitalized bank balance sheets. Beyond interest rates, the economy remains anchored by strong festive spending, though equity markets may face stagnation as investors pivot toward global opportunities and re-evaluate valuations following years of post-pandemic gains. Long-term prospects hinge on further structural reforms to compete with emerging international investment trends.