Valuenomics Research

What does Inflation Targeting mean? Inflation Targeting is a central banking policy that revolves around adjusting monetary policy to achieve a specified annual rate of inflation. The principle of inflation targeting is based on the belief that long-term economic growth is best achieved by maintaining price stability, and price stability is achieved by controlling inflation. Types of Inflation Targeting Strict inflation targeting is adopted when the central bank is only concerned about keeping inflation as close to a given inflation target as possible, and nothing else. Flexible inflation targeting is adopted when the central bank is to some extent also concerned about other things, for instance, the stability of interest rates, exchange rates, output, and employment. Background India formally adopted flexible-inflation targeting (FIT) in June 2016 to place price stability, defined in terms of a target CPI inflation, as the primary objective of the monetary policy. In this context, it ...

Currently, 10- Year U.S Treasury yield is around 1.6 percent. On 25 th Feb 2021, a 10-year bond made a high of 1.614 percent and this is the highest level since 14 th Feb 2020. The yield of a 30-year bond rose to 2.28 percent .   As we can see in the above chart from Dec 2020 levels, yield rates rose by 80 bps points.   In India, the 10-year Bond rate climbed to 6.20. How Bond Yield Effect Government Borrowings? Bonds are basically loans taken by a corporation or Government and investors receive principal at the end of the bond period. When Bond Yields rise then RBI needs to provide higher yields to investors. Recently when there was Single day rise of 10 Basis points RBI had to reject the bids because investors were looking for high yields. During the Budget, session the Government announced that they are looking to borrow 12 lakh crores during the upcoming financial year. Usually, Government borrowing cost is used as the benchmark for pricing interest rates for l...