The RBI’s rate setting panel, in its June meeting, decided to go for a jumbo 50 basis points cut in the policy repo rate from 6 per cent to 5.50 per cent even as it changed its monetary policy stance
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FRANCIS MASCARENHAS
Government Securities (G-Secs) yields have either remained range-bound or gone up despite ample liquidity in the banking system over the last few months.
Market players attribute this to the RBI’s monetary policy committee surprisingly changing the monetary policy stance to “neutral” from “accommodative” in its June meeting. They interpret this to mean that further rate cut possibility is low.
Yield of the new 10-year benchmark (maturing in 2035), which was first issued on May 2nd at a coupon rate of 6.33 per cent, was last traded at 6.32 per cent on Monday.
However, yield of the old 10-year benchmark (6.79 per cent GS 2034) rose. It was last traded at 6.38 per cent on Monday against June 6th closing yield of 6.29 per cent.
“The yields have been quiet sticky in the Government Securities market for a long time….The primary reason for this could be that the debt market has interpreted the change in monetary policy stance from “accommodative” to “neutral” as a signal that the scope for further rate cuts has reduced drastically,” said Ajay Manglunia, Executive Director, Capri Global Capital.
The RBI’s rate setting panel, in its June meeting, decided to go for a jumbo 50 basis points cut in the policy repo rate from 6 per cent to 5.50 per cent even as it changed its monetary policy stance.
Rajani Sinha, Chief Economist, CareEdge Ratings, said” “The RBI has already front loaded the rate cuts anticipating moderation in inflation. Hence, we do not expect further rate cuts, unless economic growth weakens materially.”
Daily liquidity surplus
The surplus liquidity situation in the banking system can gauged from the fact that daily liquidity surplus has been averaging about ₹3 lakh crore over the last few months.
RBI Governor Sanjay Malhotra, in his last bi-monthly monetary policy statement, observed that a total amount of ₹9.5 lakh crore of durable liquidity was injected into the banking system since January.
As a result, after remaining in deficit since mid-December, liquidity conditions transitioned to surplus at the end of March.
Two actions of the RBI will further add to the liquidity surplus in the banking system — surplus transfer of ₹2.69 lakh crore to the Government for FY25 and the 100 basis points cash reserve ratio cut (in four stages of 25 basis points each), which will cumulatively release primary liquidity amounting to ₹2.50 lakh crore.
To deal with surplus liquidity, the central bank has been conducting variable rate reverse repo auctions. This drains out the surplus.
Published on July 14, 2025
