RBI to Hold Meetings with Primary Dealers and Banks Amid Rising Bond Yields

The Reserve Bank of India has announced that it will hold meetings this week with select primary dealers and commercial banks to address concerns around rising yields on government bonds and fluctuating liquidity in the banking system, as reported by Reuters.

Although there is no formal public agenda, sources suggest the discussions will centre on current market conditions and the RBI’s response to recent developments.The decision follows the RBI’s cancellation of a recent auction of seven year government securities amounting to approximately ₹110 billion (about US$1.25 billion), a move that triggered a sharp drop in benchmark bond yields.

What’s driving this?
Two related issues appear to be at play: first, bond yields have crept higher, which raises the cost of borrowing for the government and increases the risk of losses for banks holding fixed rate securities. Second, liquidity in the banking system has been unstable, shifting between surplus and deficit, which can hamper the smooth functioning of debt markets. 

Why does it matter?
From the government’s perspective, higher yields mean more expensive borrowing and possibly less appetite from investors. For the banking system, rising yields and thinner liquidity may hurt portfolios of long term government bonds and limit banks’ flexibility. The RBI apparently views the situation as one that calls for a closer look at how bond issuance, market participation and auction calendar might be managed. 

What might happen next?
The meetings could lead to signals that the RBI is preparing to adjust its operations perhaps by tweaking the volume or tenor of upcoming auctions, or by encouraging greater participation in the bond market. If the central bank intervenes effectively, the yield pressures might ease and investor confidence could be restored. On the other hand, if yields keep rising or liquidity remains constrained, there could be broader knock-on effects on credit, borrowing costs and monetary policy transmission.