ANALYSING THE IMPACT OF INDIA AND US INFLATION ANNOUNCEMENTS ON INDIAN BOND MARKET BEHAVIOUR
Abstract
This study explores how inflation announcements from India and the United States affect the Indian government bond market, specifically focusing on ten-year G-sec yields. Inflation plays a crucial role in shaping expectations about monetary policy, investor behavior, and interest rates. While previous studies have looked at how domestic economic factors influence bond yields, less attention has been paid to the effect of scheduled inflation announcements in India. At the same time, growing global market integration raises questions about how U.S. inflation shocks spill over into the Indian bond market.
Using monthly data from April 2014 to March 2025, we analyze the Indian and U.S. Consumer Price Index, ten-year government bond yields, the USD/INR exchange rate, and Brent crude prices. Fully Modified Ordinary Least Squares (FMOLS) is used to study long-term relationships, while a Vector Error Correction Model (VECM) captures short-term dynamics. The study also employs Granger causality tests, impulse response functions, and forecast error variance decomposition to understand the magnitude, direction, and persistence of these effects.
The results show that Indian inflation announcements have a noticeable but short-lived impact on domestic bond yields. In contrast, U.S. inflation news has stronger and more lasting effects, highlighting how global signals influence the Indian market. Overall, the findings emphasize the combined impact of domestic and international inflation on Indian bond market behavior, offering practical insights for policymakers, investors, and risk managers.
Downloads
References
2. Faniband, M. and Jadhav, P. (2023) “Economic Policy Uncertainty and Government Bond Prices,” Indian Journal of Finance, 17(6), pp. 63–73. Available at: https://doi.org/10.17010/ijf/2023/v17i6/171549.
3. FRED (2025) Federal Reserve Economic Data | FRED | St. Louis Fed. Available at: https://fred.stlouisfed.org/ (Accessed: October 8, 2025).
4. Giri, A.K. and Joshi, P. (2017) “The Impact of Macroeconomic Indicators on Indian Stock Prices: An Empirical Analysis,” Studies in Business and Economics, 12(1), pp. 61–78. Available at: https://doi.org/10.1515/sbe-2017-0005.
5. Investing.com (2025) Investing.com - Stock Market Quotes & Financial News. Available at: https://www.investing.com/ (Accessed: October 8, 2025).
6. Jui, F.N. et al. (2024) “Analyzing the impact of remittance, FDI and inflation rate on GDP: A comparative study of Bangladesh, Pakistan and Sri-Lanka using VAR and BEKK-GARCH approach,” Heliyon, 10(11). Available at: https://doi.org/10.1016/j.heliyon.2024.e31381.
7. Kapalu, N. and Kodongo, O. (2022) “Financial markets’ responses to COVID-19: A comparative analysis,” Heliyon, 8(9). Available at: https://doi.org/10.1016/j.heliyon.2022.e10469.
8. Kayani, U.N. et al. (2024) “Unleashing the pandemic volatility: A glimpse into the stock market performance of developed economies during COVID-19,” Heliyon, 10(4). Available at: https://doi.org/10.1016/j.heliyon.2024.e25202.
9. Kishor, N.K. and Pratap, B. (2023) The Role of Inflation Targeting in Anchoring Long-Run Inflation Expectations: Evidence from India.
10. Kumar Dhar, S. (2015) Determinants of Corporate Bond’s Yields in Economy. Available at: http://ssrn.com/abstract=2761308Electroniccopyavailableat:https://ssrn.com/abstract=2761308Electroniccopyavailableat:http://ssrn.com/abstract=2761308.
11. Lakdawala, A., Pratap, B. and Sengupta, R. (2023) “Impact of RBI’s monetary policy announcements on government bond yields: evidence from the pandemic,” Indian Economic Review, 58, pp. 261–291. Available at: https://doi.org/10.1007/s41775-023-00171-2.
12. Mallikarjunappa, T. and G.A.K. (2007) Analyzing High-Frequency Stock Market Reactions to Major Macroeconomic Announcements: Evidence from Banking, IT, and Oil & Gas Sectors.
13. Marisetty, N. (2025a) “Analysing The Shifts in Bond Yields, Equity Returns, And Economic Indicators in India: Pre- and Post-COVID-19 Comparison,” IOSR Journal of Economics and Finance, 16(1), pp. 16–35. Available at: https://doi.org/10.9790/5933-1601011635.
14. Marisetty, N. (2025b) “Exploring the Dynamics of Inflation, Interest Rates, and Bond Yields: A Comprehensive Regression Model Comparison,” IOSR Journal of Business and Management, 27(1), pp. 01–18. Available at: https://doi.org/10.9790/487x-2701010118.
15. Moore, J.; et al. (2013) Estimating the impacts of US LSAP’s on emerging market economies’ local currency bond markets Standard-Nutzungsbedingungen. Available at: https://hdl.handle.net/10419/93667.
16. MOSPI (2025) Ministry of Statistics and Program Implementation | Government Of India. Available at: https://mospi.gov.in/ (Accessed: October 8, 2025).
17. Nagpal, S. (2022) CARDIFF METROPOLITAN UNIVERSITY School of Management Inter-Linkage between Macroeconomic factors and Stock Market: A comparative study between the U.S and India.
18. Reserve Bank of India (2025) DBIE. Available at: https://data.rbi.org.in/DBIE/#/dbie/home (Accessed: October 8, 2025).
19. Rout, S.K. and Mallick, H. (2022) “Sovereign Bond Market Shock Spillover Over Different Maturities: A Journey from Normal to Covid-19 Period,” Asia-Pacific Financial Markets, 29(4), pp. 697–734. Available at: https://doi.org/10.1007/s10690-022-09371-x.
20. Treasury, U.. (2025) Front page | U.S. Department of the Treasury. Available at: https://home.treasury.gov/ (Accessed: October 8, 2025).
Copyright (c) 2025 IJRDO - Journal of Business Management
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author(s) and co-author(s) jointly and severally represent and warrant that the Article is original with the author(s) and does not infringe any copyright or violate any other right of any third parties, and that the Article has not been published elsewhere. Author(s) agree to the terms that the IJRDO Journal will have the full right to remove the published article on any misconduct found in the published article.
This work is licensed under a 