Rising global oil prices, they climbed 2 percent on Wednesday to hit a four year-high, are bad news for importing nations like India.
The rupee collapsed to a fresh low of 73.81 as the dollar reached a 11-month high against the yen and stood tall against other peers on upbeat United States data and comments from Federal Reserve Chairman Jerome Powell that were seen as hawkish. The rupee has depreciated almost 15 percent this year, becoming the worst-performing currency in Asia apart Indonesia and the Philippines.
The bank are predicted to act to tackle rising U.S. interest rates, capital outflows from emerging markets and India's weakening balance of payments and current account deficit.
"There could be an upward revision in the inflationary projections for the year on account of higher oil prices, increase in MSPs and imported inflation (on back of rupee depreciation)", CARE Ratings said in a research note.
China's financial markets are closed for the week.
"Fuel and gas prices are on fire and markets are scurrying".
The benchmark 10-year bond yield hit 8.2 per cent in early trade against the previous close of 8.11 per cent.
First of all, the heavy selling in markets is based on macro factors like weakening Indian rupee against the USA dollar and it is showing no inclination to strengthen. One economist expected a 50 basis point hike to 7%.
Analysts ruled out chances of a cut in the central bank's cash reserve ratio (CRR) on Friday.
Anindya Banerjee, deputy vice president, currency derivatives at Kotak Securities, added: "The RBI is ready to keep real rates high because the policy mandate is to anchor inflation".
"The biggest policy anchor for rupee is high real rates".