Prelims 2021 · Economy · Question 6
Indian Government Bond Yields are influenced by which of the following?
- Actions of the United States Federal Reserve
- Actions of the Reserve Bank of India
- Inflation and short-term interest rates
Select the correct answer using the code given below.
Answer
1, 2 and 3
1. Actions of the United States Federal Reserve — US Fed rate changes affect global capital flows, dollar yields, and risk sentiment; this can influence demand for Indian government securities and their yields. Verdict: Correct.
2. Actions of the Reserve Bank of India — RBI policy rates, liquidity operations, OMOs, and bond purchases/sales directly affect government bond prices and yields in India. Verdict: Correct.
3. Inflation and short-term interest rates — Bond yields reflect inflation expectations and the prevailing interest rate environment; higher inflation/short-term rates generally push yields up. Verdict: Correct.
Hence, all three influence Indian Government Bond Yields.