Government bond yields edge lower amid RBI policy decision 

Government bond yields were marginally lower on Thursday after remaining choppy throughout the Reserve Bank of India's (RBI) monetary policy decision announcement where guidance was largely in line with expectations.

The benchmark 7.26 per cent 2033 bond yield was at 7.16 per cent as of 11:30 am IST, after ending the previous session at 7.17 per cent .

At the time of the announcement, it hovered between the day's low of 7.14 per cent and the day's high of 7.18 per cent.

"Since the hawkishness was already priced in and the RBI did not go out of the way to pass on an ultra-hawkish message, bonds yields are largely around the same levels," said a trader with a state-run bank.

The RBI held the key lending rate steady on Thursday, as inflation concerns resurfaced after a higher-than-usual seasonal rise in food prices in recent weeks.

The central bank raised the inflation forecast for the current quarter and the financial year. It said that the monetary policy committee was resolute in its commitment to aligning inflation to the 4 per cent threshold and anchoring inflation expectations.

Inflation in the country snapped a four-month downward trend in June, rising to 4.81 per cent. Retail inflation likely advanced to 6.40 per cent in July, according to a Reuters poll.

Near-term liquidity 

The central bank asked banks to set aside a larger share of incremental deposits as Cash Reserve Ratio (CRR) to tighten liquidity in the near term.

Banks will have to maintain an incremental CRR of 10 per cent on rise in deposits between May 19 and July 28. This will be in effect from the fortnight starting August 12.

It will reduce liquidity in the system by about Rs 90,000 crore ($10.87 billion), said Deepak Agrawal, CIO-fixed income at Kotak Mahindra Asset Management.

(With Reuters inputs)