RBI should stop fretting over bond yields
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The yield curve has risen in all countries in February. There’s no immediate threat to private borrowers from rising yields
The RBI’s battle of nerves with the bond market on where the government bond yields should trade, while being quite entertaining, seems futile. The odds are stacked high against the central bank a gigantic government borrowing schedule, prospects of a faster economic recovery due to the Covid-19 vaccine rollout, and inflation beginning to rise again.
It is fairly obvious that the central bank’s stance on keeping the yield of the 10-year bonds close to the pre-Covid levels is driven by the need to control the borrowing cost of the Centre. The weighted average yields of new government bond issuances have averaged around 5.82 per cent in the first half of FY21 and the Centre seems to want pricing to remain close to these levels.
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