Message from market

Space for fiscal and monetary policy is limited

- 

The Reserve Bank of India (RBI) seems somewhat uncomfortable with the prevailing bond yields.

The auction of 10-year government bonds worth %32,000 crore went through last week, but the RBI had cancelled the auction of seven-year government bonds earlier this month because investors were demanding higher yields. Further, as reported by this newspaper, the central bank has suggested to state governments to reschedule their borrowing to ease the supply pressure. Recently, Maharashtra rejected all the bids for certain bonds. It is worth noting here that the Monetary Policy Committee (MPC) of the RBI has reduced the policy repo rate by 100 basis points this year, but yields on the benchmark 10-year government bonds have declined by only about 30 basis points. Yields on 10-year bonds have gone up by about 20 basis points since the rate cut of 50 basis points in the June policy.