Early post-conflict data for India points to firmer wholesale inflation and a modest rise in CPI. The Wholesale Price Index is described as more exposed to commodity and imported cost changes, and is expected to move higher due to base effects and external pressures.
Near-term price effects are expected to outweigh growth effects, depending on how long geopolitical tensions persist. For FY26, a wider trade deficit was offset by steady services exports, keeping the full-year current account deficit near -0.6–0.7% of GDP.
Bond Yields Outlook
Indian bond yields are expected to remain range-bound, with offsetting forces in play. In the absence of fresh escalation in Middle East tensions, yields are projected to stay within 6.8–7.0%.
Banking-system liquidity is described as ample. The RBI has used administrative measures to slow one-way rupee depreciation, with USD/INR holding above 93.00 mid-week after being near a record 95.0 in March, alongside reported effects on portfolio flows.
The immediate concern is that wholesale price inflation will climb faster than consumer prices, a trend confirmed by the latest March 2026 data showing WPI at 5.8%. We saw a similar pattern with the commodity shocks in early 2025, which suggests this upward pressure is real. Therefore, positioning for higher short-term interest rates through overnight index swaps (OIS) could be a prudent hedge against a more hawkish central bank.
We expect Indian government bond yields to remain stuck in a narrow 6.8% to 7.0% channel in the near term. The 10-year yield currently sits near the top of this range at 6.95%, a situation reminiscent of the tight consolidation we witnessed through the final quarter of 2025. This environment is ideal for strategies that profit from low volatility, such as selling strangles on 10-year bond futures to collect premium.
Currency And Reserves
On the currency front, the Reserve Bank of India is actively capping USD/INR strength, preventing a runaway depreciation of the rupee. With the pair having been pushed down to 93.00 from its record high near 95.00 last month, implied volatility has decreased, making options cheaper. India’s foreign exchange reserves hitting a new record of $655 billion in February 2026 gives the RBI plenty of ammunition to continue this policy, suggesting that buying USD/INR put options offers a good risk-reward profile.
