Indian government bonds face worst drop in six months after central bank steps

Indian government bonds saw a sharp drop after the central bank took steps to pull money out of the financial system. The benchmark 10-year bond yield hit its highest point in three years, which points toward possible rate hikes ahead. At the same time, consumer inflation went up to 5.54 percent, beating earlier predictions and worrying people about future money policies. To deal with this, the Reserve Bank of India announced plans for bond sales and changes to how banks keep their cash reserve ratio.

Context

Central banks like the Reserve Bank of India manage money supply and interest rates to keep prices stable and control inflation in the economy. When consumer prices rise faster than expected, central banks often take money out of the system to cool down spending.