In a surprise move last week, the MPC had an unscheduled meeting in which the repo rate or the key policy rate was increased by 40 bps to 4.4 per cent. The RBI also increased banks’ cash reserve ratio (CRR) requirement by 50 bps to 4.5 per cent.
The yield on the 10-year benchmark government bond fell almost 9 bps to end the day at 7.21 per cent. In the last two sessions, yields have fallen by 25 bps.
The bond market is also expecting some support from the central bank to carry out a massive borrowing programme of the government which is Rs 13.41 trillion for FY23. While RBI is unlikely to conduct open market operations to infuse liquidity since such a move will be contradictory to CRR hike, a hike in the bank’s held to maturity category will create more headroom for lenders to buy government securities.