Archive · 5 Oct 2026
RBI Liquidity Withdrawals Expected to Flatten India’s Yield Curve
Government bonds are loans that investors make to the government.
Their yields are the returns investors get.
Analysts expect yields on shorter-term bonds to rise as India’s central bank removes extra cash from banks.
If that happens, the difference between five-year and 10-year bond yields may get smaller.
The five-year yield was around 6.94% and could reach 7%, according to the report.
The RBI has already removed more than Rs 1 lakh crore from the banking system.
It kept its main interest rate at 5.25%, although SBI Research said a rate increase was becoming more justified.
Analysts expect India’s government bond yield curve to flatten further as the Reserve Bank of India withdraws surplus liquidity.
The report says the five-year yield, around 6.94%, could rise to 7% if the RBI maintains an aggressive tightening stance.
Analysts expect the gap between five- and 10-year yields to narrow, potentially to 10 basis points.
The RBI has already withdrawn more than Rs 1 lakh crore, and further liquidity operations and any rate hikes could affect the curve.
The article says the RBI kept its repo rate unchanged at 5.25%, while SBI Research argued that conditions strengthened the case for a 25-basis-point hike.
- Who
- The Reserve Bank of India, bond-market analysts, and SBI Research.
- What
- Analysts expect liquidity withdrawals to flatten India’s government bond yield curve; the RBI kept its repo rate at 5.25%.
- When
- The RBI’s three-day Monetary Policy Committee meeting began on Monday, with a decision due Wednesday; no calendar dates are given.
- Where
- India.
- Why
- Withdrawing surplus banking-system cash can put upward pressure on shorter-term yields and narrow the gap between five- and 10-year yields.
- Current five-year benchmark yield
- Around 6.94%
- Possible five-year yield
- 7% if the RBI maintains an aggressive tightening stance, according to the report
- Possible five-to-10-year yield gap
- As little as 10 basis points
- Liquidity withdrawn so far
- More than Rs 1 lakh crore
- Repo rate
- 5.25%, unchanged according to the article
- SBI Research view
- A 25-basis-point rate hike was increasingly warranted, citing inflation, global conditions, liquidity, and repricing of risks.