Mumbai: Bonds fell the most in more than a month on Tuesday after the central bank unexpectedly told lenders to set aside more reserves for the fourth time this year.
The yield on the benchmark 10-year bond rose to the highest in more than a week after the Reserve Bank of India ordered banks to keep 7.5% of deposits in cash, from 7%, starting from 10 November, to prevent surplus funds from quickening inflation.
Fifteen of the 22 analysts in a Bloomberg survey had expected no change in the so-called cash reserve ratio (CRR).
“More inflows are being envisaged given the strong growth fundamentals in the economy,” said S. Ananthanarayan, chief bond trader at Kotak Mahindra Bank Ltd, a Mumbai-based primary dealer that underwrites government debt sales.
“The central bank’s attempt will be to see that not much cash is floating in the system,” starving the bond market of funds. The yield on the benchmark 7.99% bond due July 2017 rose 4.5 basis points to 7.86% at close, the highest since 22 October, according to the central bank’s trading system.
Global funds bought a record $17.1 billion of shares more than they sold this year, according to the Securities & Exchange Board of India.