The 10-year government bond yield surpassed 7% for the first time since June 2019 after the Reserve Bank of India (RBI) increased the held-to-maturity ceiling by 100 bps. The bond yield hit a high of 7.007%t, a level last seen on June 13, 2019, up 9 basis points from its previous close of 6.913%. 

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Before the policy meeting, the 10-year bond yield had already risen to about 7%. On March 8, the 10-year government bond yield increased by 1.37%. On March 7, the 10-year bond yield was 6.91%, 6.92% on March 6, and almost 6.90% on March 5.

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The six-member Monetary Policy Committee (MPC) increased its inflation projection for the current fiscal year while lowering its estimates for real Gross Domestic Product (GDP) growth for FY23 to 7.2% from 7.8% due to the Russia-Ukraine conflict and rising fuel prices. 

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“The RBI projects CPI (Consumer Price Index) inflation at 5.7% for FY23, as against 4.5% projected earlier,” RBI Governor Shaktikanta Das said.

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Bond yields were stable in response to global turmoil, as they were provided with a break from government debt supply in February and March. Because of cancelled auctions, the government’s borrowing programme for FY22 came to an end on February 25, and the supply of bonds hitting the market for that month was lower than expected.

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The MPC agreed unanimously to hold the repo rate at 4% and to stay accommodative while focusing on removing accommodation to ensure that inflation remains within target while supporting growth in the future.