MUMBAI: Yield on the 10-year government bond fell 15 basis points on Friday after the Reserve Bank of India cut repo rate by 40 basis points in an unscheduled meeting.
The yield on the 6.45%, 2029 bond declined to 5.88% from its previous close of 6.033%.
RBI Governor Shaktikanta Das, in a live-streamed address, announced the cut in benchmark repurchase rate by 40 basis points to 4%. The reverse repurchase rate was reduced to 3.35% from 3.75%.
The decision was reached after a 5:1 vote at the Monetary Policy Committee meet.
The decision to cut key interest rates comes after the central bank's previous attempt to make banks increase lending to consumers, non-banking finance companies and mutual funds have failed to make an impact.
Inflation outlook is highly uncertain, the MPC felt, according to Das. Headline inflation could ease later and by Q3 and Q4 could fall below 4%, its target set earlier. Supply shock to food prices may linger, the MPC felt and called for re-appraisal of import duties.
GDP growth in FY21 is expected to remain in negative territory, Das said.
The RBI decided to extend bank rolling facility of Small Industries Development Bank of India.
The RBI will extend Exim Bank a Rs15,000 crore credit line for 90 days with rollover of 1 year to help it avail of US dollar swap facility.