Clever RBI.

"Traders on Friday (yesterday) added to bets that the Federal Reserve will raise interest rates before the end of the year, and keep them high for longer next year, after a US government report showed employers added far more jobs than expected last month." Reuters. "The report, expected to show non-farm payrolls increased by 170,000 in September but in fact showing employers added 336,000 jobs," caused "Futures contracts to now price in a Fed policy rate of 4.69% at the end of next year, up from 4.59% seen before the report." On the same day, "The Reserve Bank of India's Monetary Policy Committee...unanimously decided to keep policy repo rate unchanged at 6.5% for the fourth time in a row and maintain economic growth and inflation projection." DH. "The market for US Treasurys has shed almost a quarter (24.7%) of its value since Treasury yields bottomed out in the summer of 2020." Investopedia. "One of those bear markets occurred in 1860, just before the outbreak of the Civil War, when prices fell 18.7% from peak to trough." "Rising borrowing costs have pushed the 10-year Treasury yield to a 16-year high of 4.8%." Bond yields in India soared yesterday after the RBI said "it plans to conduct open market sale of bonds through auctions to manage liquidity in the system". Reuters. "The 10-year bond yield closed at 7.3412%." By tightening money supply the RBI hopes to push up borrowing costs without having to increase interest rates. On 10 August "RBI Governor Shaktikanta Das asked banks to hold an incremental cash reserve ratio (ICRR) of 10% on increase in deposits between May 19 and July 28, with effect from the fortnight starting Aug 12." Reuters. The ICRR was a master-stroke by the RBI, admired Madan Sabnavis. This was because banks were unwilling to bid for variable reverse repo rate (V3R) auctions which earned interest at 6.49% but funds were tied up for 14-28 days. "A way out for the RBI was to impose a ICRR that at one stroke impounded Rs 1 trillion. While this served the central bank's liquidity absorption goal, banks stood to lose, as the mandatory cash reserves of banks held with RBI do not earn interest," wrote Sabnavis. Must have worked a treat because, "Liquidity deficit in the banking system widened to Rs 1.46 trillion on Monday (18 Sept)," and "The shortage has kept pressure on overnight rates, with call money and TREPS (Tri-party Repos) rates at 6.75%-6.90%." wrote Gopika Gopakumar. "Indian banks should be lending their surplus funds to their peers" "rather than passively parking in the SDF (standing deposit facility) at relatively less attractive rates," said the RBI yesterday. The foolish US Fed raises its Funds rate to control inflation, easy to understand, while the clever RBI contorts itself into totally incomprehensible knots so as not to raise its interest rate. It has to beware that it does not tie itself in a Gordian Knot (wikipedia). Will need a sword to undo it.