Tag: bond market

The August review of the Reserve Bank of India’s bi-monthly monetary policy was interesting as: 1.) no unanimous voting on the policy stance 2.) more than expected revision in inflation forecast for FY22 and 3.) announcement of the variable rate reserve repo auction – an indication that the central bank has started the gradual withdrawal of the ultra-loose monetary policy that was in place since the onset of the Covid-19 pandemic. As expected, there was complete unanimity among all the six members of the monetary policy committee (MPC) to keep the interest rate unchanged at 4%. However, on maintaining the accommodative stance, five of the six members voted in favour. Professor Jayanth Verma disagreed. Read more

The bond market got a negative surprise on Budget day (1st Feb 2021) when the government projected its gross borrowing numbers for the next financial year at Rs 12.05 trillion, much higher than the expected Rs 10.5 trillion. To make the matter worse, the government said it would borrow an additional Rs 80,000 crore in the current financial year, too. “The Rs 80,000 crore extra borrowing for this year is especially a bolt from the blue for the bond market,” said an expert. “This is because the government has been consistently running very high cash balances lately, revenues have picked up dramatically, and even though spending has gone up, it hasn’t been tracking anywhere close to what is required to yield the revised Budget numbers.” Read more