India's 10-Year Bond Yield May Fall Below 7% as GDP Growth Seen at 7.1%

As per the analysis of Crisil Intelligence, bond yields witnessed significant volatility in March, driven by a sharp rise in crude oil prices and heightened geopolitical tensions, which pushed the benchmark yield to its highs for the current financial year.

However, easing inflationary pressures, supportive liquidity conditions, and policy expectations are likely to help stabilise yields in the coming months, it said.

The report added that, in its base case, India's gross domestic product (GDP) growth is expected at 7.1 per cent in the current fiscal, supported by healthy private consumption and steady investment growth.

Export growth is also expected to benefit from lower US tariffs, although disruptions to global trade due to the West Asia conflict and slower global growth may act as a drag.

It further noted that government measures to cap retail fuel prices could support consumption.

On inflation, Crisil projected CPI inflation to average 4.5 per cent in fiscal 2027.

It said domestic liquidity remains comfortable, which is expected to act as a cushion against external shocks, even as global uncertainties continue to weigh on sentiment.

The report also highlighted that crude oil prices and geopolitical developments, particularly in West Asia, remain key risk factors for the bond market. Elevated oil prices could stoke inflation concerns and limit the pace of any decline in yields, it said.

At the same time, global cues, including movements in US Treasury yields and the US Federal Reserve's policy trajectory, are expected to play a crucial role in shaping the direction of Indian bond yields.

On the domestic front, the Reserve Bank of India's (RBI) liquidity management measures and policy stance will be closely watched, with the central bank expected to play a stabilising role amid volatile conditions.

Crisil added that its base case assumes the Monetary Policy Committee (MPC) will maintain policy rates during the current fiscal.

Despite these headwinds, Crisil maintained that the outlook remains moderately positive, with yields expected to gradually soften as macroeconomic conditions improve and volatility subsides.

- IANS