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Informist, Friday, Jun. 6, 2025

 

--RBI Sankar: Typically, short end adjusts quicker to rate changes 

--RBI Sankar: Don't target any gilt yield levels 

--RBI Sankar: Market will find its own level on G-Sec yield curve 

--RBI Sankar on bond yields: Leave adjustments to the market

 

MUMBAI – The market determines the proper yield level for government bonds, while the Reserve Bank of India has no set targeted levels for gilt yields, RBI Deputy Governor T. Rabi Sankar said at the post-policy press conference on Friday. The RBI's Monetary Policy Committee meeting outcome is one of the myriad factors that affect the gilts market, he said, adding that short-term gilts are usually more receptive to shifts in policy rates.  

 

"Short-end adjusts quicker to rate changes, when rates are cut the curve steepens and when the rates are hiked the curve flattens," Sankar said. "But over a period of time this gets adjusted." 

 

Earlier in the day, the RBI's Monetary Policy Committee unexpectedly lowered the policy repo rate by 50 basis points to 5.50% and also changed the policy stance to 'neutral' from 'accommodative'. Moreover, the RBI also lowered the cash reserve ratio by 100 bps to 3.0% of banks' net demand and time liabilites, which is expected to infuse liquidity to the tune of INR 2.5 trillion into the banking system. 

 

A cut in policy rates and infusion of liquidity into the banking system are expected to make the yields on short-tenure gilts to fall faster than the long-term bonds, which will likely lead to a steepening of the yield curve. As of 1450 IST, the yield on the 10-year benchmark, 6.33%, 2035 gilt over the 5-year benchmark 6.75%, 2029 has widened to 44 bps from 35 bps at Indian market close Thursday.

 

"If market feels it (yield curve) is too steep compared to what it should be they would adjust to that," Sankar said. "We'll leave it to the market."  End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Vidhushi RajPurohit

Edited by Tanima Banerjee

 

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