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RBI will not let go off bond market, says Deputy Governor Patra

The government aims to borrow a record Rs 14.31 lakh crore via bonds this financial year. The RBI, as the government's debt manager, is expected to manage the borrowing programme and keep yields low.

June 24, 2022 / 01:21 PM IST

The Reserve Bank of India (RBI) will not let go off the bond market, deputy governor Michael Patra said June 24, adding that the central bank will aid the government's market borrowing.

“(The) RBI is reacting on an ongoing basis,” Patra said at an event in New Delhi. “This year we have to shift our gaze to inflation but we will not let go off the bond market and we will make dispensation of other type like the HTM (held to maturity).”

In this year’s budget, the government had estimated a fiscal deficit target of 6.4 percent of gross domestic product. Simply put, a fiscal deficit occurs when the government’s expenditure exceeds revenue from taxes and other sources. A fiscal deficit is mainly financed through market borrowings like treasury bills and government bonds.

New Delhi aims to borrow a record Rs 14.31 lakh crore via bonds this financial year. The RBI, as the government's debt manager, is expected to manage the borrowing programme and keep yields low.

It is currently looking to withdraw pandemic-era accommodation and has hiked policy rates to keep a lid on soaring price pressures in the economy. It has stopped its own Quantitative Easing-style Government Securities Acquisition Programme (G-SAP) since October last year and is indulging in reverse repo auctions to suck out excess liquidity from the banking system.

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Globally, too, the US Federal Reserve is hiking interest rates aggressively to combat inflationary pressures. That, coupled with higher crude oil prices, sent the benchmark 10-year yield to an over three-year high of 7.62 percent on June 16.

“Yields are uncomfortably high but please bear in mind the environment in which these yields have been formed. The US 10-year yield has crossed 3 percent, and the global spill-overs from there are regularly happening in our bond market; our bond market is not insulated,” Patra said today.

Furthermore, the oil prices are having a big impact on yields and these are factors not within the RBI’s control, the deputy governor said.
Moneycontrol News
first published: Jun 24, 2022 01:21 pm
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