What explains the sharp spike in the 10 year benchmark yields in India?

The bond yields on the 10 year benchmark had been hovering around the 7.5% mark for some time and on Monday it finally crossed that level. The benchmark 10-year bond yield actually rose to a 39-month high of 7.5%. This was largely on the back of anticipating a 50 basis rate hike in the June policy announcement on 08th June with perhaps another CRR rate hike also to amplify the impact of the repo rate hike.

But the real trigger came after the banker surveys hinted at RBI also raising its inflation forecast for FY23. In the April policy, RBI had raised the inflation forecast by 120 bps from 4.5% to 5.7%. In the June policy, the RBI is expected to hike inflation target for FY23 by another 80 bps to 6.50%. It was in mid-March 2019 that the yields were last seen at these elevated levels. At the same time, the rupee has inched closer to the 78/$ mark in the last few days, while Brent Crude has crossed above $120/bbl on supply concerns.