Bond market to suffer with lower RBI pay-out. Bond markets to suffer as traders pinning their hopes on a larger-than-budgeted central bank payout. To Prime Minister Narendra Modi’s government. Which may be in for a disappointment. According to Quantum Advisors Pvt.
The Reserve Bank of India will probably transfer as much as ₹60,000 crore ($8 billion) for the year to June 30, sticking with estimates unlike last year when the payment was almost double the amount budgeted, said Arvind Chari, Mumbai-based head of fixed income at Quantum. That’s because the RBI earned lower interest on its bond and deposit investments while it had to fork out more to banks for parking their funds with it, Chari said.
“The surplus transfer will see a big drop,” said Chari. “If this is true, it will be a negative surprise to the markets,” as “the expectation was for a higher transfer from the RBI given the dire fiscal situation.”
The government had budgeted to raise about ₹90,000 crore from the RBI and other financial institutions in the financial year that started April. “This just puts more pressure on the RBI to get directly involved in funding the fiscal deficit and supporting the bond market,” Chari said.
Due to a change in the accounting norms, the RBI is likely to earn about ₹25,000 crore from its foreign-exchange operations, compared with ₹29000 crore last year, Chari said. Meeting the requirement of contingency reserves at 5.5% to 6.5% of the balance sheet will require the RBI to retain about ₹66,000 crore as compared with a transfer of ₹52,000 crore last year, according to his estimates.
The Government is positive of the situation Post-COVID, and has taken series of steps to boost the economy. Focusing on the MSMEs, NBFCs, the Finance Ministry has alloted reliefs through special credit lines amongst others; which is bound to push the bond market. The stock market has taken a upper hand in the times of Lockdown with people more eager to trade directly and independently.
