RBI Governor to Make Unscheduled Statement, Spurring Hike Talk

(Bloomberg) -- Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

The Reserve Bank of India said its governor will make an unscheduled statement on Wednesday, sending bond yields surging on speculation of a rate hike.

Governor Shaktikanta Das will address the public at 2 p.m. local time via You Tube, the central bank's official Twitter account said, without providing more details. Yields on the benchmark 10-year bond jumped as much as nine basis points to 7.21%, while the benchmark stock index extended losses to 1.1%.

Since the RBI turned hawkish last month as inflation jumped, traders have priced in the most aggressive rate hikes in the region for the central bank. The unscheduled statement comes just as the Federal Reserve is expected to raise rates by 50 basis points later Wednesday, which may spur capital outflows from emerging markets.

“Traders are trying to price in the possibility of an interim rate hike ahead of the Fed,” said Harish Agarwal, fixed income trader at FirstRand Bank Ltd.

The RBI shifted focus from growth to inflation in its April policy, with headline CPI standing at 6.95% in March, breaching its comfort level of 6% for a third consecutive month. Economists expect price pressures to surge further in the coming months.

Policy makers in the RBI's six-member rate-setting panel have signaled in recent days that the central bank is free to raise rates to combat Asia's third-fastest inflation.

The S&P BSE Sensex fell as much as 1.1%, while all but one of 19 sectoral sub-indexes compiled by BSE Ltd. declined. The rupee was marginally higher.

“Though the chances of a mid-policy rate increase looks thin, the fact that the governor is making a surprise statement has become a perfect storm for equities,” said Abhay Agarwal, fund manager at Piper Serica Advisors Pvt.

READ: Traders See Most Aggressive Asia Rate Hikes Coming to India