RBI sets up panel to deepen financial market engagement

The Reserve Bank of India (RBI) will constitute a financial market consultative committee (FMCC) to deepen engagement with market participants as financial markets and infrastructure evolve rapidly, governor Sanjay Malhotra said on Wednesday.The committee will serve as a forum for structured engagement with market participants and stakeholders on policy and operational matters related to money, government securities and foreign exchange markets, as well as their respective derivatives markets and infrastructure.The composition and terms of reference for FMCC will be separately notified, the central bank said in a press release.The RBI on Wednesday raised its key interest rate for the first time in nearly four years as rising inflation risks and a sharp shift in the global rate environment prompted the central bank to reverse its easing cycle. The Monetary Policy Committee (MPC) increased the key repo rate by 25 basis points to 5.50%. Nine of 10 economists surveyed by Mint had expected a rate hike, while only one called for a pause.This has come as rising bond yields in advanced economies and an appreciating dollar are keeping global financial market sentiments nervous and fragile.Further tightening of global financial conditions, uncertainty about the fair valuation of artificial intelligence stocks, and an elusive resolution of the West Asia conflict pose significant downside risks to the global economic outlook, the governor said during the speech.Bond Street reactionOn Wednesday, yield on the 10-year benchmark government bond rose to a high of 7.26%, up from its opening level of 7.21% after the governor announced the shift in policy stance to “calibrated tightening” from its “neutral” stance earlier.Currently, yield on the 10-year paper is trading at around 7.24%, unchanged from its previous close.

This came as the market soon recovered some of the losses amid no announcement of additional measures on liquidity such as open market operations or an increase in cash reserve ratio.While the rate hike was in line with market expectations, the change in stance was a little surprising and triggered the initial reaction, market participants said.“For bonds, global yields and crude are now the key signposts. If both peak, the 7.24–7.25% zone for the 10-year g-sec looks attractive, a renewed global shock could push yields towards the 7.35–7.40% peak corridor before value emerges,” said VRC Reddy, treasury head at Karur Vysya Bank.