India’s bonds slumped on Wednesday, sending yield sharply higher, after the Reserve Bank of India (RBI) cut the statutory liquidity ratio, or the amount of bonds banks must set aside with the central bank, by 50 bps to 19.50 percent from mid-October.
The decision, announced at the same time the RBI kept the repo rate unchanged at 6.00 percent, is meant to spur banks into lending more, but it would mean increased supply at a time of ample liquidity.
The RBI said it would reduce banks’ statutory liquidity ratio by 50 bps to 19.5 percent from the fortnight starting Oct. 14.
The benchmark 10-year bond yield rose 8 basis points to 6.70 percent from levels before the SLR announcement.
Meanwhile the rupee strengthened to 65.26 per dollar from around 65.34 before the decision, while the broader NSE Nifty gained 0.7 percent.