Bonds and the Bond Market in India
The RBI, Repo Rate and the Bond Market
The RBI influences bond yields through its policy rate, open market operations and liquidity management, and it manages government borrowing.
The central bank’s dual role.
Policy rate
Changes in the repo rate flow into bond yields.
OMO
Open market operations, where the RBI buys or sells bonds, adjust liquidity.
Debt manager
The RBI runs auctions and manages the government’s borrowing programme.
Tension
Managing borrowing cost while controlling inflation can conflict.
A bond purchase
When the RBI buys bonds, yields tend to fall and banks get more cash.
Assuming the RBI only sets the policy rate
It also manages debt and liquidity.
Key takeaways
- Repo rate affects yields.
- OMOs adjust liquidity.
- The RBI manages the borrowing.
- Dual roles can conflict.
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