RBI bond sales fail to stem falling yields

MUMBAI: The downtrend in government bond yields persists despite the Reserve Bank of India’s debt sales. Regardless of inflation pressure easing, RBI may not yet be ready to give up on its high interest rate stance due to excess liquidity in the system. If there are a few more bond sales in the next few weeks, it may well be the confirmation of fears that RBI is in no mood to cut rates.

RBI will be waiting for data points such as inflation based on the wholesale price index and the consumer price index before taking any call to cut rates.

“Sucking excess liquidity from the system is broadly indicating a no-rate-cut action in the December policy,” said Arvind Narayanan, executive director and head of sales, treasury and markets, DBS Bank India. “If bond yields fall sharply there may be another OMO (open market operation).”

Yield on the benchmark 10-year bond fell 7 basis points to 8.19 per cent, the lowest since September 2013. It has fallen 29 basis points since October 1 after RBI held rates. Bond prices and yields move in opposite directions. “RBI is addressing liquidity and steep fall in yield with the tool of open market operations,” said Ashutosh Khajuria, president, treasury, Federal Bank. “RBI is not going to take any decision in haste. They are going to analyse all data — CPI, WPI, global politico economic factors and sustainability of crude oil price to take a call. If yields fall sharply there may be more OMOs.”