EM rout forces RBI into conflicting market actions

Bloomberg

A global squeeze on emerging market assets has forced the Reserve Bank of India to take actions that sometime appear at conflict with each other.
To help cool rising bond yields, the central bank said that it will buy bonds for the first time in 18 months, infusing cash into financial markets. But that counters moves to prop up a sliding currency — by selling dollars from reserves and buying up rupees, effectively draining liquidity.
The weaker currency, by driving up import costs, is adding to inflation risks at a time when oil prices are already climbing. That’s leading policy makers to warn of higher interest rates sooner rather than later — a hawkish bias that is acting as an upward pressure on bond yields, which of course, the RBI is seeking to contain.
The RBI isn’t alone in this conundrum. Emerging markets from Argentina to other countries have all faced similar tough choices as a stronger dollar and rising US Treasury yields push investors to dump higher yielding assets.
“Developments in the bond and foreign exchange markets have complicated the monetary policy setting, raising questions about the RBI’s
primary objective,” said Priyanka Kishore, lead Asia economist at Oxford Economics Ltd. in Singapore.