The government's demonetisation exercise is weighing heavily on India's debt market with overnight short-term rates and benchmark yields dipping significantly amid high rate cut expectations and surplus cash positions.
"The system liquidity has turned surplus," said Jayesh Mehta, country treasurer at Bank of America-Merrill Lynch. "RBI has been doing reverse repo auctions to stabilise the situation. If low overnight rates sustain over a period, corporate borrowing costs will come down."
