After the announcement, the yields on the 10-year benchmark government security 8.15%, 2022 paper, was at 7.86%, unchanged from the previous close.
As a result of the reduction in the CRR, around Rs 180 billion of primary liquidity will be injected into the banking system, said the RBI.
“If liquidity management was the only motive, RBI could have managed with Open Market Operations. We were prepared for no change in CRR, followed by OMO announcement. But the cut in CRR will give additional amount for banks to lend. It has addressed the immediate liquidity issue. So, the motive behind the CRR seems to induce banks to cut rates. RBI wants to give scope for banks to pass through the rate cuts," said the head of treasury of a public sector bank.
Yields on the benchmark are likely to be around 7.8%. But since the CRR has been cut, the RBI is unlikely to follow up with immediate OMO announcements, he added.
Sujoy Das, Head of Fixed Income, Religare Asset Management said the cut in CRR will come in handy in March, when there is advance tax outflows.
“The cut is good for all debt market instruments. Going ahead yields will be stable to benign," he said. The yields on the 10-year benchmark is likely to be between 7.75-7.9%."