RBI's new liquidity curbs push Indian bonds and stocks lower

On Monday, the Reserve Bank of India implemented a package of actions aimed at bolstering the rupee, including a new dollar window for state-owned oil companies, tighter rules on currency derivatives and an increase in the daily cash reserve ratio for banks to 99% from 90%. These steps, together with elevated oil prices and El Niño concerns, triggered a broad sell-off in domestic equities and pushed the benchmark 10-year government bond yield up 9 basis points to 7.39%, the highest level since March 2023.

The Sensex fell 0.76% to 71,924.68 and the Nifty 50 dropped 0.70% to 22,363.35, with banking stocks such as State Bank of India and ICICI Bank bearing the brunt of the decline. The rupee strengthened nearly 1% to close at 95.78 per dollar. Analysts noted that rising yields raise borrowing costs and could dampen interest-sensitive sectors, while a looming El Niño and weak monsoon may pressure inflation and consumer spending.