RBI extends dispensation of enhanced HTM limit to March 31, 2024

Earlier this year, the central bank increased the limit to 23 percent from 22 percent earlier for securities that can be placed in the HTM category.

Money market dealers said that this move will help yields on the bonds to rise as more buying can be seen from the banks going forward.

"This announcement was positive for the bond market which led yields to ease, which was otherwise rising due to inflation comments," said a dealer with a state-owned bank.

The yield on the 10-year benchmark government bonds rose to 7.31 percent during the day, then finally settled 2 basis points up from its previous. The yield on 7.26 percent-2032 benchmark government bond ended at 7.2693 percent, as compared to 7.2486 percent in the previous trading session.

Money market dealers said that the comments on core inflation dampened the sentiments of traders. "The main risk is that core inflation (CPI excluding food and fuel) remains sticky and elevated," the RBI said in a release.

The central bank in its monetary policy statement projected headline inflation at 6.7 percent in 2022-23, with Q3 at 6.6 percent and Q4 at 5.9 percent. The risks are evenly balanced.

CPI inflation for Q1:2023-24 is projected at 5 percent and for Q2 at 5.4 percent, on the assumption of a normal monsoon.