Bond Yields Decline as RBI Addresses Market Concerns
MUMBAI: Indian bond yields eased following meetings between reserve Bank of India (RBI) officials and primary dealers too discuss challenges in the bond market, including elevated yields and tight liquidity.The Indian rupee also strengthened Tuesday, closing at 88.65 against the dollar,a 13-paise gain attributed to state-run bank dollar sales and central bank intervention in offshore markets.
The RBI’s engagement with primary dealers signals a proactive approach to addressing recent market pressures. Key discussion points centered on the prevailing high bond yields and the need to improve liquidity conditions. Concurrently, the rupee’s appreciation provides some relief amid ongoing foreign portfolio investor (FPI) outflows.
Contributing to improved liquidity, the banking system benefited from a 25 basis point reduction in the cash reserve ratio (CRR) on November 1, bringing it down to 3.25%.
The rupee’s rise was supported by intervention in the offshore non-deliverable forwards (NDF) market, initially opening 40 paise stronger at 88.41/$1 compared to its previous close of 88.75/$1. However, gains were partially offset by a risk-off sentiment and a strengthening dollar index.
“There was sharp intervention in the offshore market,but we gave up most gains due to a risk-off sentiment and strengthening dollar index. Foreign investors also kept selling, adding to the pressure,” noted dilip Parmar, currency analyst at HDFC Securities.
The dollar index reached near a three-month peak Tuesday, while most Asian currencies weakened. It stood at 100.01 versus 99.52 at the beginning of the month. FPIs sold ₹1,067.01 crore worth of Indian equities Tuesday, according to BSE data.
A currency trader from a PSU bank indicated market expectations for continued RBI intervention near 88.75/$1 levels to protect the record low of 88.80/$1.