Bond yields have fallen from a high of 6.2 percent in the end of August to below 6 percent on Thursday. However, the government borrowing in the second half is most likely to be higher than expected given the tax shortfall and the expenditure secretary almost admitted that. How much higher will it be? What tools does the Reserve Bank of India (RBI) have to manage the borrowing programme? And will an appreciating rupee affect the RBI’s ability to buy bonds?
The rupee has appreciated from a low of 76.9 in April to 72.9 in early September, and the dollar became cheaper by Rs 4. Can the RBI buy both bonds and dollars? What about bond yields? Will they fly towards 6.5 percent as we come to terms with higher borrowing or does the RBI have enough space both on liquidity and to cut rates? Will these cuts be effective at all?
B Prasanna, head-global markets group at ICICI Bank; Soumya Kanti Ghosh, group chief economic advisor at State Bank of India and Neeraj Gambhir, president, head treasury and markets at Axis Bank answered all these questions on Indianomics.