“The Reserve Bank will also remain focused on orderly completion of the government’s borrowing programme,” central bank governor Shaktikanta Das said in the policy statement.
The benchmark bond yield closed at 7.49 per cent Wednesday versus 7.52 per cent a day earlier as a section of traders were quick to book profits. Yields had declined a maximum of 8 basis points through the day.
Bond yields fall when prices rise.
Operational Twist (OT) could be a tool for managing yields as the central bank has reportedly expanded the universe of securities for such an operation.
In 2021, the RBI bought long-term government securities and sold similar quantities of shorter duration sovereign papers through OT.
The governors’ assurance in managing the fiscal year’s sovereign borrowing helped allay market apprehension on rising yields. At the same time, the retention of growth projection at 7.2 per cent for the whole FY23 lifted the bond market, pointing to the likelihood of easing inflationary pressures toward the second half of the year.
“For the bond market, the Governor has reaffirmed support at the appropriate time without committing to anything immediately,” said Suyash Choudhary, head – fixed income,
Mutual Fund. “It seems likely that, assuming RBI’s near-term inflation forecasts are met and there are no fresh commodity shocks, the pace of hikes after 5.15% (likely to be achieved by August policy) will probably slow down further.”
The Monetary Policy Committee revised its FY23 inflation projection to 6.7 percent compared with 5.7 percent pegged earlier. The spike in the forecast will primarily come in the first two quarters of the financial year.
“Going ahead, while normalising the pandemic related extraordinary liquidity accommodation over a multi-year time frame, the Reserve bank will ensure availability of adequate liquidity to meet the productive requirements of the economy, ” said the governor.
Surplus liquidity, as reflected in average daily absorption under the liquidity adjustment facility (LAF) – that is, the absorption under SDF and variable rate reverse repo (VRRR) of 14 days and 28 days – at Rs 5.5 lakh crore during May 4-May 31 was lower than Rs 7.4 lakh crore during April 8-May 3, 2022.
