The liquidity conundrum: Rate cuts need right balance in financial system

How much liquidity do we need: Appropriate, adequate, or abundant? To inject growth instinct, adequate liquidity needs to complement rate cut

Last Friday, the yield on the 10-year bond dropped to its lowest level in three years. However, corporate bond yields and certificate of deposit rates have been rising. The spread, or interest rate differential between the repo rate and corporate bond yields, has recently widened to 125 basis points (bps), while the spread between central government securities and corporate/state government bonds has increased from 30–35 bps to 45–55 bps. (One basis point is a hundredth of a percentage point.) Bond prices and yields move in opposite directions.

 

Why is this happening despite a 25 bps rate cut by the Reserve