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India wants the central bank to lower bond yields

May 10, 2022

India wants the central bank to lower bond yields
India has asked its central bank to either buy back government bonds or conduct open market operations to cool yields that have hit their highest since 2019, as inflation risks push foreign investors to sell, a government source told Reuters on Monday.

The 10-year benchmark bond ended at 93.69 rupees on Monday, yielding 7.46%, after earlier reaching a high of 7.49%.
“The discussion with the RBI (Reserve Bank of India) is at an advanced stage as current yields are not at comfortable levels,” the government official, with direct knowledge of the matter, said on condition of anonymity.
The authority said the government expected the RBI to conduct a switch activity, offering investors an opportunity to trade their short-dated bonds for debt with a longer maturity, or to buy back government bonds within the next two weeks.
The official said the RBI would take a decision on the timing and size of any bond purchases next week.

The RBI and the finance ministry didn’t quickly answer messages looking for input. The request from the government could complicate the central bank’s policy of withdrawing liquidity from the market, which marks a shift away from the ultra-loose monetary stance it took during the pandemic.
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