Can't displease the boss.

"Even with the removal of taxes on overseas purchases of sovereign bonds, relative yield differential and the current state of the policy cycle and INR expectations do not provide much comfort with respect to prospects of debt flows," SBI Funds said. "The assessment comes as SBI Funds also expects the Reserve Bank of India (RBI) to remain on an extended pause on interest rates," as "The RBI's repeated emphasis on core inflation also indicates a greater tolerance for headline inflation remaining above the 4% target." The Hindu. In this decade, "Beijing has dropped export prices nearly 20%, producing a 40% surge in volume." China's trade surplus jumped 20% to a record $1.2 trillion last year. "Across Asia, nations where Chinese imports are rising fastest, also tend to have the weakest job growth. India has been particularly hard hit recently, and has suffered a sharper decline in manufacturing, than many Asian rivals." TOI. What is the connection between the SBI Funds report and Chinese perfidy? India's "Retail inflation based on Consumer Price Index (CPI) in June, was 4.38%." It was 3.93% in May. pib.gov.in. But, "All India Wholesale Price Index (WPI) for June 2026 was 9.87% on a year-on-year basis, compared to 9.68% in May 2026." "Across groups, 'Mineral oils (containing Petroleum Products), 'Food Articles', 'Manufacture of Basic Metals', and 'Manufacture of Chemicals and Chemical Products', have been major drivers of WPI inflation in June 2026." pib.gov.in. India's trade deficit with China was a record $116.12 billion in 2025 (understandupsc) and is already at $67.1 billion in the first half of 2026 (ET). Cheap Chinese imports may explain why the CPI inflation has risen a little to 4.38% while input costs, as shown by the WPI inflation, have risen at 9.87%, near double digits. "Central banks in many major emerging markets have already hiked their rates." But, "The term 'core inflation' (excluding food and fuel inflation) has been mentioned eight times in Governor (of RBI) Malhotra's statement," wrote Mythili Bhusnurmath. In May 2026, Poonam Gupta, Deputy Governor in charge of monetary policy, pointed out, "Of the 48 countries that currently operate under an [inflation targeting] framework, 47 target headline inflation." In India, "The government...extended the mandate for the RBI to maintain CPI inflation at 4%, with a tolerance band of 2 percentage points on either side, for another five years ending 31 March 2031." TOI. So, the mandate is for 4%, with tolerance for an occasional slippage, and not tolerance forever, which the RBI seems to think. India's GDP grew 7.7% in 2025-26 which should "tighten output gap and lift inflation. Instead India's 'refined' core inflation, which excludes food, fuel and precious metals to better capture domestic demand conditions, fell...from around 6% in early 2023 to 2.1% in the first quarter of 2026." This was because of a combination of productivity expanding faster than domestic demand, lower food prices restrained household inflation expectations, which may have suppressed demand for higher wages, lowering of GST rates in late 2025 and "China has exported disinflation to much of the world." "But policymakers should avoid drawing structural conclusions from an exceptional period," wrote Dhiraj Nim. Markets have inferred a hierarchy of objectives which seems to guide the RBI. "Many investors would describe the hierarchy roughly as: exchange rate stability (supporting the rupee), government's borrowing costs, growth and finally inflation," wrote Puja Mehra. Annual CPI inflation in the US was at 3.5% in June. bls.gov. A higher rate of inflation relative to the US would lead to a weaker rupee against the dollar and so the difference in yields between US Treasuries and GOI bonds should be higher than it is to compensate for the expected fall in the rupee. Foreign investors are shunning GOI bonds because the RBI is refusing to raise rates. That is what SBI Funds is trying to explain. But without upsetting the RBI. Because the RBI is the regulator. The Boss.