(Bloomberg) -- India’s government raised the limit on bonds it issues to the central bank to help it mop up excess liquidity in the financial system, prompting sovereign bonds to extend losses.
The cap on the so-called Market Stabilization Scheme was increased to 6 trillion rupees ($87.9 billion) from 300 billion rupees for the year ending March 2017, according to a Reserve Bank of India statement. Banks have been flush with funds after Prime Minister Narendra Modi on Nov. 8 banned existing 500 rupee and 1,000 rupee notes in a bid to curb graft. That saw people rushing to deposit the old bills with lenders.
The yield on government notes due September 2026 jumped 4 basis points to 6.25 percent as of 1:38 p.m. in Mumbai, according to prices from the RBI’s trading system. The benchmark equity gauge was down 0.4 percent.