RBI MPC: Bond yield rises 5 bps in absence of liquidity measures

Bonds

Indian bond yields, especially the 10-year benchmark bond, rose 5 basis points (bps) in the absence of liquidity measures in monetary policy announcements made by Reserve Bank of India governor Sanjay Malhotra on February 7.

The 10-year benchmark bond 6.79 percent 2034 yield rose to 6.6958 percent during policy announcement compared to 6.6449 percent at the open.

“As policy was on expected line and no immediate measure for on liquidity front, 10-year G-sec has reacted by moving 4-5 bps higher post the policy announcement,” said Deepak Agrawal, CIO- Debt, Kotak Mahindra AMC.

The absence on the announcement in the monetary policy was expected due to a slew of measures announced last month to improve liquidity in the banking system.

The RBI has announced various liquidity measures such as open market operations (OMO) purchases, daily variable rate repo (VRR) auction, USD/INR Buy Sell swap auction, and long term VRR auction.

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Liquidity has been under stress in the past few weeks and the shortfall touched almost Rs 3 lakh crore in January due to higher tax outflows in December, the central bank’s intervention in the foreign exchange market to defend the rupee and lower government spending.

Initially, the RBI was injecting liquidity through routine VRR auctions then on January 16 it announced the daily VRR auction and followed it up with a slew of measures to ease the pressure.

The central bank has injected Rs 28.27 lakh crore through VRR auctions. Of the total, Rs 14.65 lakh crore was through daily VRR auctions and the remaining Rs 13.62 lakh crore through general VRR auctions.

The central bank also pumped in 20,020 crore through OMO purchases.

The RBI MPC, which met for the first time under the new central bank governor Sanjay Malhotra, the repo rate by 25 basis point to 6.25 percent to give a boost to a slowing economy.

The rate-setting panel unanimously decided to continue with the “neutral” stance.

The rate cut, the first in almost five years, comes a week after Finance Minister Nirmala Sitharaman presented the Budget for FY26. The RBI projected GDP growth for the next fiscal at 6.7 percent. The inflation projection for current fiscal remains unchanged at 4.8 percent.