RBI increases interest rate on floating rate bonds to 7.69%

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The Reserve Bank of India (RBI) on October 28 announced a 231 basis point higher rate of interest on the government's Floating Rate Bond (FRB), 2034, at 7.69 percent per annum. One basis point is one-hundredth of a percentage point.

This interest rate will be applicable for the half-year period from October 30, 2022 to April 29, 2023.

"It may be recalled that FRB, 2034 will carry a coupon, which will have a base rate equivalent to the average of the Weighted Average Yield (WAY) of last three auctions of 182 Day T-Bills, plus a fixed spread (0.98%)," the central bank said in a release.

On April 29, the RBI had set interest on GOI FRB 2034 at 5.38 percent for the April 30, 2022-October 29, 2022 period.

Floating Rate Bonds are securities that do not have a fixed coupon rate. They have a variable coupon rate which is re-set at preannounced intervals.

The FRB bonds carry a coupon with a base rate equivalent to a weighted average yield of the last three auctions of 182-day Treasury Bills (T-Bill) plus a fixed spread decided by way of auction.

Since the start of this financial year, yields on T-Bills have risen more than 3 percent after the rate hike by the RBI and the systematic withdrawal of liquidity from the banking system.

In the auction held on October 27, the cut-off yield on the 91-day T-Bill was set at 6.3994 percent, 182-day at 6.7195 percent, and 6.9197 percent on 364-day.