Bond mkt factored in rate cut, adjusted yields before actual cut
RBI Sankar
This story was originally published at 17:17 IST on 30 October 2025
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--RBI Sankar:Econ activity will not be compromised due to liquidity pressure
--RBI Sankar: Liquidity will be provided adequately
--RBI Sankar: Liquidity measures to come as and when we see necessary
--RBI Sankar: Bond mkt factored in rate cut, adjusted ylds before actual cut
--RBI Sankar: Softer demand from insurance cos led to current bond yields
MUMBAI – Indian bond market adjusted the levels of yield before the policy rate cut by the Reserve Bank of India, based on anticipation of a rate cut, RBI Deputy Governor T. Rabi Sankar said Thursday. The 10-year benchmark yield, which fell to a low of 6.13% from 6.59% in February when the RBI cut the repo rate after five years, has rebounded to 6.57%.
Due to the rebound in yield, there is a narrative that the repo rate cut has not percolated into the bond market. However, Sankar is of the view that bond market speculates a rate cut priorly and adjusts the yield. This had also happened when the RBI had started hiking the repo rate in 2022, Sankar said at Business Standard's BFSI Insight Summit. Before the last rate hike cycle began, bond yields were at about 6% and the peak they reached was roughly about 7.62%, Sankar said. "But when the RBI started hiking rates, they were already at 7.12%, they had already factored in."
Besides the repo rate cut, there are other factors as well that affect bond yields, Sankar said. According to the deputy governor, the current level of yields are on account of softer demand for bond among insurance companies.
The RBI had cut the repo rate by 100 basis points between February and June. The central bank had also announced phased implementation of cut to the cash reserve ratio, starting September, to improve system liquidity.
The central bank's net absorption from the banking system--a proxy for a surplus--was INR 145.90 billion Wednesday, against 80.84 billion injected on Tuesday, a proxy for deficit in the system. Liquidity has slipped into a deficit repeatedly since last week on tax outflows, but is seen improving due to the government's month-end spending and the next tranche of the CRR cut effective Saturday. Meanwhile, Sankar also ensured that economic activity will not be compromised due to liquidity pressure. The RBI will take liquidity measures as and when it is necessary, Sankar said. "Liquidity will be provided adequately." End
Reported by Krity Ambey and Sagar Sen
Edited by Akul Nishant Akhoury
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