RBI flags concern over elevated yields

OMO purchase unlikely in November as last tranche of CRR cut pending

- ANJALI KUMARI & MANOJIT SAHA

With the spread between 10-year government bond and the comparable US treasury widening close to 250 basis points (bps), the Reserve Bank of India (RBI) seems to have conveyed its discomfort with elevated yields to the market. The central bank is holding a series of discussions with market participants this week and next week.

Despite a cumulative 100-bps reduction in the repo rate between February and June, the 10-year bond yield has not eased in line with policy rates and has instead inched higher since the 50-bps policy rate cut in June. The yield on the benchmark 10-year government bond has risen by 24 bps since June, while the yield on the 10-year US Treasury bond has fallen by 32 basis points during the same period.