16-06-2025
Rally in Indian bonds loses momentum after RBI changes monetary policy stance to neutral
Academy
Empower your mind, elevate your skills
A rally in Indian bonds is stalling after the central bank raised the bar for future interest rate cuts and on concerns that it may start curbing excess liquidity in the banking system. The yields on the five-year and 10-year bonds jumped more than 20 basis points and six points respectively this week, reversing some declines in the current quarter. This came after the Reserve Bank of India (RBI) unexpectedly shifted its policy stance to neutral from accommodative last week, warning that it has 'very limited space' left for further central bank has followed up by halting cash infusions through its daily operations. These moves—along with reports suggesting the RBI may act to lift money market rates —have clouded the bond market outlook. Higher yields may raise government's borrowing the backdrop of the aggressive policy easing of the past few months, the shift in stance has led some market participants to question the sustainability of yield levels, said Suyash Choudhary, head of fixed income at Bandhan yield on the 10-year bond may be in a range of 6.25% to 6.45% in the coming weeks, according to Jana Small Finance Bank . ICICI Securities Primary Dealership said there is room for the yields to rise by five to 10 basis 10-year yield had declined by 23 basis points this quarter to 6.35% on 12 June bond yields had initially declined after the RBI's policy statement as investors took relief from the central bank's assurance of comfortable liquidity. It reduced the cash reserve ratio unexpectedly by 100 basis RBI's next move could be a resumption of its variable rate reverse repurchase operations, a tool used to mop up excess money, said VRC Reddy, head of treasury at Karur Vysya Bank . 'The market hopes that the reverse repos start only when the cash-reserve ratio cuts come into effect from September.'
