Indian Government Bond Yields are influenced by which of the following?
1.Actions of the United States Federal Reserve
2.Actions of the Reserve Bank of India
3.Inflation and short-term interest rates
Select the correct answer using the code given below:
Answer:
(d)
Non-traditional
The primary factors affecting yield include the monetary policy of the Reserve Bank of India, particularly the course of interest rates, the fiscal position of the government, its borrowing program, global market conditions, the overall economy, and inflation. Therefore, statement 1 is correct. The actions of the Reserve Bank play a crucial role in determining liquidity and the cost of available funds within the economy through its various tools for managing inflation. Hence, statement 2 is correct. Inflation and short-term interest rates are key determinants of people’s purchasing power in the economy. Consequently, these factors also impact the demand and prices of government securities, thereby influencing their yield. Thus, statement 3 is correct.