Short-term govt bond rates harden after incremental CRR guidelines

The yield on the one-year and two-year government bonds has edged up 8 basis points and 4 basis points respectively since August 10

Surplus liquidity in the banking system has fallen significantly with the hardening of short-term rates after the incremental cash reserve ratio (CRR) norms came into effect from August 12.

During the monetary policy review announcement on August 10, the Reserve Bank of India (RBI) mandated all scheduled banks to maintain an incremental cash reserve ratio (I-CRR) of 10 per cent on the increase in their net demand and time liabilities (NDTL) between May 19, 2023 and July 28, 2023, with effect from 12 August.

Following the move, surplus liquidity has dried up to Rs 53,800 crore as of August 20,