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RBI’s Surplus Transfer Falls Short of Expectations, Limiting Bond Yield Gains Amid Rate Cut Speculation

India’s bond market didn’t overreact when the Reserve Bank of India (RBI) announced a record ₹2.69 trillion surplus transfer to the central government for 2024–25. Yes, the number beat the government’s budget estimate of ₹2.56 trillion, but it still fell short of what some in the market were hoping for, with expectations climbing as high as ₹4 trillion. That shortfall kept bond yields from dropping much further.

What the Market Expected vs. What Happened
The surplus, roughly 0.2% of the GDP, was expected to give the government a bit more breathing room. That extra space could have been used to borrow less or spend more on infrastructure and development. While the transfer was still large by historical standards, it wasn’t quite the windfall that more optimistic forecasts had suggested.
So, how did investors respond? With caution. Yields on the 10-year government bond barely budged. That’s partly because they were already trending down, thanks to earlier RBI efforts to keep money flowing through the economy. In other words, this wasn’t a game-changer.
What’s Behind the Bond Yield Trends
The RBI has been actively working to keep liquidity high, aiming to support economic growth. One example: in April, it bought ₹80,000 crore worth of government bonds through Open Market Operations (OMOs). Moves like this have pushed bond yields lower overall, and earlier this month, the 10-year benchmark yield hit a three-year low of 6.33%.
Still, the market had largely already factored in this kind of RBI support, so when the surplus transfer came in lower than some hoped, it didn’t shift the needle much.
Eyes on the Next Rate Cut
Investors are now zeroing in on the RBI’s next big move: the monetary policy meeting on June 6. Many expect another rate cut. Analysts at Nomura even see rates dropping to 5.00% by the end of the year. Why? Because inflation is cooling off, global economic signals suggest the RBI can afford to stay supportive.
The central bank’s decision will also depend on upcoming economic data. The GDP numbers for January–March are expected to show 6.7% growth, and the April fiscal deficit report will give more clues on how the government’s finances are holding up.
Bottom Line
The RBI’s surplus transfer is welcome, but it wasn’t big enough to shake up the bond market. Thanks to ongoing liquidity support and hopes for further rate cuts, yields remain steady. Now, all eyes are on fresh economic data and the RBI’s next steps to see where the market heads from here.
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