RBI faces uphill task as bond yields stay stubborn amid weak demand

Since yields on government bonds directly affect the cost of money in the financial system, it can be argued that the transmission of policy rate cuts has been weak

The Reserve Bank of India (RBI) seems somewhat uncomfortable with the prevailing bond yields. The auction of 10-year government bonds worth ₹32,000 crore went through last week, but the RBI had cancelled the auction of seven-year government bonds earlier this month because investors were demanding higher yields. Further, as reported by this newspaper, the central bank has suggested to state governments to reschedule their borrowing to ease the supply pressure. Recently, Maharashtra rejected all the bids for certain bonds. It is worth noting here that the Monetary Policy Committee (MPC) of the RBI has reduced the policy repo