Bonds sell-off: RBI governor asks markets for trust

By: |
February 25, 2021 4:21 AM

Das endorsed the flexible inflation tagetting mechanism saying the gains were visible and should be preserved and nurtured. “The band give 2% room on either side. The central bank doesn’t see any big spike in inflation to over 6% just yet.

“It is receiving our full attention,” the governor said, adding the benefits of blockchain technology have to be exploited.“It is receiving our full attention,” the governor said, adding the benefits of blockchain technology have to be exploited.

Reserve Bank of India (RBI) governor Shaktikanta Das on Wednesday sought to calm the bond markets saying they should trust the central bank based on its past actions, read its signals and co-operate in the orderly evolution of the yield curve. Das reassured them saying liquidity will continue to be sufficient.

In an interview to CNBCTV18, the governor made it unequivocally clear the RBI had major concerns about cryptocurrencies which had been communicated to the government. The government and Parliament would take a decision. However, the central bank is working on a digital currency. “It is receiving our full attention,” the governor said, adding the benefits of blockchain technology have to be exploited.

Das endorsed the flexible inflation tagetting mechanism saying the gains were visible and should be preserved and nurtured. “The band give 2% room on either side. The central bank doesn’t see any big spike in inflation to over 6% just yet.

Das observed that as the government’s debt manager, the central bank would take necessary policy measures to ensure the borrowing programme goes through in a non-disruptive manner. “We have several tools to manage liquidity and I have made it clear that pulling out liquidity will be done prematurely in a manner that it will stifle growth,” he said. The markets have been somewhat nervous about the large government borrowings – Centre and states — in FY22 and the bond actions have received tepid response. Benchmark yields soared some 14 basis points in the week to February 19 and by 6 basis points on Monday to hit 6.2%. Since then yields have tapered off and closed at xxx on Wednesday.

The governor said large borrowing may have surprised the market but pointed out the net borrowing was `9 lakh crore. “So far, we have done `3 lakh crore of OMOs this year and there is no reason why we should do less next year. It would have to be `3 lakh crore or depending on how the situation evolves,” Das said. Further, we have extended the special dispensation under the HTM (hold to maturity) category of the bond portfolio so that creates space of `4 lakh crore,” the governor said. India was in advanced stages of talks for inclusion in EUROCLEAR and that RBI was engaged with the concerned agencies on India’s inclusion in a global bond index.

He ruled out any immediate access to the reverse repo window for non-bank players like mutual funds.

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