The Reserve Bank of India (RBI) will not abandon the bond market, according to deputy governor Michael Patra on June 24, adding that the central bank will support the government’s market borrowing.
Patra stated at a New Delhi event that “(the) RBI is reacting on an ongoing basis.” We must focus on inflation this year, but we won’t abandon the bond market and will continue to issue other types of bonds, such as those that must be held to maturity.
In the budget for this year, the government projected a fiscal deficit of 6.4 percent of GDP. Simply explained, a fiscal imbalance is when the government spends more than it receives in taxes and other revenue. Treasury bills and government bonds are the major sources of market borrowing used to cover a fiscal deficit.
This fiscal year, New Delhi plans to borrow a record Rs 14.31 lakh crore through bonds. The RBI is responsible for managing the government’s borrowing programme and ensuring low yields.
It has raised policy rates to contain the economy’s escalating pricing pressures and is currently looking to discontinue pandemic-era accommodations. Since October of last year, it has suspended its own Government Securities Acquisition Programme (G-SAP), which was modelled after Quantitative Easing, and is instead engaging in reverse repo auctions to drain the banking system of surplus liquidity.
The US Federal Reserve is actively raising interest rates around the world to counteract inflationary pressures. The benchmark 10-year yield reached a more than three-year high of 7.62 percent on June 16 as a result of that and rising crude oil prices.
“Yields are excessively high, but please remember the setting in which they were created. Our bond market is not protected; the worldwide fallout from the US 10-year rate crossing the 3-percent line frequently affects it, according to Patra today.
The deputy governor added that the oil prices are also significantly affecting yields and that the RBI has no control over these issues.