Bond market boosted by dovish RBI

Indian bonds have continued to rally this month after the Reserve Bank of India (RBI) delivered a surprise rate cut and left the door open for further loosening. However, we fear that policy could be loosened too far and stoke inflationary pressures. If this proves to be the case, the RBI may have to reverse course and hike rates over the next 12-18 months, which would be accompanied with a jump in bond yields.

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