Minutes Shows RBI Inflation & Growth Key Concerns

The RBI sold shorter dated debt at lower yields than expected on Friday which saw yields drop, the aggressive cut offs meant that INR 27.8bn of the 2026 bonds were devolved on primary dealers. The sale totaled INR 345bn against an indicated total of INR 320bn.

• Meanwhile, the release of the RBI minutes showed policymakers were concerned over the impact on the economic recovery from the second wave of the pandemic, even as inflation overshoots target. Goldman Sachs says "The MPC is focused on sustaining the growth revival, and unanimously recognize that demand conditions are not conducive for cost-push inflation to pass through to retail inflation. However, some members highlighted the policy trade-offs between growth and inflation, and are monitoring "clear signs of generalization in CPI inflation" as a tipping point for this trade-off to alter. In that light, the recent CPI upside surprise, and elevated oil prices will likely concern the MPC. As of now, the accommodative policy mix with adequate liquidity support is expected to continue with focus on market and off-market financing channels to buoy credit growth."
• Elsewhere India will conduct an INR 100bn operation switch today, converting shorted dated debt to longer maturities. To convert INR 20bn each of:
  • 6.84% 2022 bond and 7.16% 2023 bond to 6.64% 2035 bond
  • 5.09% 2022 bond, 8.35% 2022 bond, and 7.32% 2024 bond to the 2033 floating rate bond