As against Wednesday's close of 7.913%, 10-year government bond yield yet again hardened on Thursday to 7.95% boosted by the key rate hike by the RBI to 6.25%, an increase in interest rate by 25 basis points for the first time in over 4 years. Bond prices however declined as bond yields and price move in opposite direction.

Also, the banks have now been allowed to consider a further 2% investment into G-securities as high quality liquid assets (HQLAs) under the basel III provisions. Banks are required to mandatorily invest 19.5% of the total deposits in G-securities known as SLR or statutory liquidity ratio. But with the new leverage, 13% of these investments can be considered as HQLAs as against the previous 11%. Thus pressure on banks will be reduced to raise short term funds for these compulsory investments.

In its policy review, the RBI also upped its inflation forecast to 4.8-4.9% for H1FY19 and 4.7% for H2FY19. In the first policy review for the FY19, the RBI predicted average inflation to remain in the range of 4.7-5.1% in the first half of the current financial year and then recede slowly to 4.4% in the H2FY19.

Meanwhile, the Indian currency also weakened against dollar and was down by 0.222% at 67.075.

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