Bond yields harden as Reserve Bank shows no sign of policy turn

Traders expect the excess cash with banks to dry up significantly over the next three to four months

Traders of government bonds were not surprised when the Reserve Bank of India (RBI) announced a sixth consecutive increase in the repo rate on Wednesday. What did dampen the market’s spirits, however, was the lack of a concrete sign from the central bank that it would pause rate hikes going ahead.

The RBI’s Monetary Policy Committee raised the repo rate by 25 basis points to a four-year high of 6.5 per cent on Wednesday. The size of the rate hike was the smallest in the RBI’s current rate-hike cycle, which began in May 2022.

While the slower pace of rate