RBI buys bonds to cool rates
The RBI on Tuesday announced measures to comfort the bond market after a sharp spike in benchmark 10-year yield on government securities following its recent steps to support the rupee.business Updated: Aug 20, 2013 22:28 IST
The Reserve Bank of India (RBI) on Tuesday announced measures to comfort the bond market after a sharp spike in benchmark 10-year yield on government securities or g-secs following its recent cash-tightening steps to support the rupee.
The RBI said it will buy long-dated government bonds worth Rs 8000 crore through an open market operation on August 23 and thereafter decide on the amount and frequency as warranted. The benchmark 10-year bond yield closed at 8.90 % compared with 9.23% on Monday. The yield rose to as high as 9.48% in early trade, its highest since July 15, 2008.
The RBI also relaxed rules for banks on their mandatory bond holdings, known as the statutory liquidity ratio, which will help banks protect their bond portfolios from large mark-to-market losses. In contrast to an earlier rule asking banks to reduce their hold-to-maturity bond holdings gradually to 23% of deposits, the RBI has now allowed banks to retain those holdings at 24.5 % of the total.
"The hardening of long term yields has resulted in banks incurring large mark-to-market (MTM) losses in their investment portfolio," RBI in the statement.