The Reserve Bank of India (RBI) has chalked out a three-pronged strategy to manage the liquidity overhang in the system even as it yet again ruled out a repo rate cut in response to the 25 basis points cut in the US Federal Funds rate.
The RBI may bring forward the government borrowing programme to suck out excess liquidity from the banking system.
The other options are enhancing the notified amount of the treasury bill auctions and conducting an open market sale.
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RBI Deputy Governor Rakesh Mohan today said the central bank was closely monitoring the liquidity situation and there would be no impact of the Fed rate cut on the Indian markets.
The message for the market is clear: the RBI does not want bond yields to fall further. Bond yields today, in fact, moved up on the RBI talk, which was clearly aimed at warding off any impact of the Fed rate cut here.
Besides, the market was also disappointed by a lower-than-expected US rate cut. The benchmark 9.81 per cent 10-year bond closed at an yield of 5.73 per cent, up from the previous close of 5.70.
The yield on the bond hit a intra-day high of 5.74 per cent after Mohan