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RBI Governor Shaktikanta Das tries tough love with bond market

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‘Market participants need to take a broader time perspective, bid with sensitivity to signals from RBI’

With giant borrowings to be facilitated for the Centre and the States within the second half of 2020-21, RBI Governor Shaktikanta Das on Friday sought market individuals’ cooperation and termed ‘the orderly evolution’ of the yield curve a public good for which they shared accountability with the central financial institution.

Mr. Das reiterated an assurance that the extra borrowings required to satisfy the exigencies of the pandemic, could be accomplished in a ‘non-disruptive manner without compromising on price and financial stability’. Conceding that the expanded debt provide had imposed pressures on the market, he mentioned the RBI was able to assuage such pressures and dispel any liquidity issues in monetary markets.

“Market participants, on their part, need to take a broader time perspective and display bidding behaviour that reflects a sensitivity to the signals from the RBI in the conduct of monetary policy and debt management. We look forward to cooperative solutions for the borrowing programme for the second half of the year,” Mr. Das mentioned, in a direct message to bond markets.

“Over the last few weeks, there has been some disconnect between the rationale underlying the RBI’s debt management and monetary operations on the one hand, and expectations in the market, on the other,” he mentioned, doubtless alluding to some latest auctions of presidency debt that didn’t elicit enthusiasm from buyers.

“It is said that it takes at least two views to make a market, but these views can be competitive without being combative,” Mr. Das remarked. The RBI, he mentioned, had determined to double the scale of its liquidity-enhancing open market operations (OMOs) to ₹20,000 crore primarily based on market suggestions, including that he anticipated individuals to ‘respond positively’ to the transfer.

Three fast measures had been introduced to ease liquidity — permitting banks to carry extra SLR holdings until maturity for securities bought within the second half of 2020-21, focused long-term repo operations for as much as ₹1 lakh crore with tenors of as much as three years, and open market operations in State Development Loans as a ‘special case’. Mr Das mentioned these steps must allay market issues about ‘illiquidity and absorptive capacity for the total government borrowing in the current year.’

Aditi Nayar, principal economist at ICRA Ratings, mentioned it remained to be seen if the RBI’s dedication to facilitate authorities borrowing, and its specific alerts geared toward softening yields, would show enough “to ensure that the bond market shrugs off concerns regarding the fiscal health of the Central and State governments, as well as the large supply of State bonds that is expected in Q4 of 2020-21.”



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