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RBI under the new leadership seems committed to ensure rate cut transmission for growth

ICICIdirect Research 07 Mar 2025 DISCLAIMER

The Reserve Bank of India (RBI) has announced measures to inject liquidity into the banking system, including two open market operation (OMO) purchase auctions worth ₹1 lakh crore and a USD/INR buy/sell swap auction of USD10 billion. RBI also announced Rs 50000 crore VRR auction to infuse temporary liquidity this week itself (on 7th March)

This is the second such liquidity measure announced by RBI in less than 1 months anticipating year end pressure.

System liquidity which had risen to a deficit of more than ₹3 lakh crore in January has started to come down with an average deficit of around ₹1.5 lakh crore in February and less than 30000 now.

Globally, Bond yields had risen sharply after Europe announced an unprecedented spending plan raising concern in fiscal deficit and supply side pressure. Germany's 10 year bund yields rose by more than 25bps, biggest rise in the last 3 decades, to 3.08%. US Bond yields also rose by 5 bps to 4.3% Australia, New Zealand and Japan Bond yields also rise around 10 bps.

So far Indian Bond yields have shown remarkable resilience and trade in a narrow range at around 6.75% despite global volatility. Once global volatility subsides, Indian Bond yields will move lower taking cues from dovish RBI.

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