Bonds fall as RBI hikes CRR

Bonds fall as RBI hikes CRR

Mumbai: Bonds fell to the lowest in a week after the central bank unexpectedly hiked the cash-reserve ratio for the fourth time this year.

Reserve Bank of India ordered banks to set aside 7.5% of deposits in cash, up 50 basis points from 7%, starting 10 November to prevent surplus funds in the banking system from quickening inflation.

The yield on the benchmark 7.99% bond due July 2017 rose 3 basis points to 7.84% in afternoon deals, the highest since 22 October 2007. The price of the bond fell 0.18% to 100.98.

The RBI says that the biggest challenge before it is the management of capital flows and the attendant implications for liquidity and overall stability.

FIIs bought a record $17.1 billion of shares more than they sold this year, according to Securities & Exchange Board of India data.

The stock market regulator on 25 October barred issuance of offshore instruments tied to derivatives to curb capital flows.