The Reserve of India (RBI) does not have a specific target for the government bond yield curve but focuses on its orderly evolution, Governor Shaktikanta Das said on Friday. A yield curve is a line that plots yields or interest rates of government bonds having equal credit quality but different maturity dates.
The slope of the yield curve gives an indication of future interest rate changes and economic activity. "We are focusing on orderly evolution of the yield curve. We use various policy instruments and market interventions from time to time to do that.
We do not have a specific target of a yield curve," Das told reporters after the post monetary policy press conference. Das said the intervention is not just post the primary auction of government securities, but also through various measures like Government Securities Acquisition Programme (G-SAP), Open Market Operations (OMO), Operation Twist, and also through intervention in the secondary market.
According to an article published in RBI's monthly bulletin for June, the sovereign yield curve has a special significance for monetary policy in influencing a wide array of interest rates in the economy. The article -- 'A Macroeconomic View of the Shape of India's Sovereign Yield Curve' -- was authored by Michael Debabrata Patra, Harendra Behera and Joice John from the RBI.
The authors said monetary policy is a potent instrument for influencing the term structure of interest rates -- policy rate changes tend to impact the slope of the yield curve, while liquidity impacts the level as well as the slope of the yield curve, rendering it a better instrument for managing the yield curve.