India’s Central Bank Head Says Uncommon Measures are Working

(Bloomberg) -- India's central bank governor said the unconventional policy steps the authority has undertaken to boost lending to the real economy are starting to work.

The gap between the main repurchase rate and the benchmark 10-year bond yield has begun to narrow as a result of its measures aimed at pulling down corporate borrowing costs, Reserve Bank of India Governor Shaktikanta Das said in an interview Tuesday.

“Our target was transmission takes place onto the corporate bond market segment,” he said. “Obviously, the other thing which will happen is that the yield curve, that is the gap between the long and the short tenor, will naturally reduce and that is happening already.”

The RBI has adopted the toolkit of its peers to pull down borrowing costs after five rate cuts in 2019 failed to spur credit demand. A mix of a Federal Reserve-style ‘Operation Twist' and the European Central Bank-like cash boost to banks has led to term spreads -- the gap between 10-year debt and 364-day Treasury bill yields -- shrinking from a decade-high in December.

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In the corporate debt market, yields on three-year bonds issued by top-rated issuers dropped 50 basis points to 6.34% in February, the biggest monthly fall in about a decade, according to data compiled by Bloomberg.

“Today most of corporates are aligned to the two- and three-year government paper where the yields have softened,” Das said. “The transmission in the corporate bond market has been very impressive.”

--With assistance from Rahul Satija and Anurag Joshi.

To contact the reporter on this story: Anirban Nag in Mumbai at anag8@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Ravil Shirodkar, Karthikeyan Sundaram

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