Potential Extra Issuance In Focus

Participants look ahead to today's auction, the sale could struggle on fears that India could have to increase borrowing again this year due to the pandemic. The Finance Minister Sitharaman is expected to speak today after a meeting with the goods and services tax panel, markets will hope there are some hints as to borrowing requirements. The meeting is scheduled at 0630BST/1100IST with no scheduled time for comments.

• There was a Bloomberg sources article which said India could have to increase borrowing again this year in order to compensate states for revenue losses due to a shortfall in consumption tax collection nationwide. According to the report the additional borrowing requirement is estimated at INR 1.58tn. A panel is set to meet on Friday to discuss the issue. If there was to be extra borrowing in-line with estimates it would mean total borrowing this fiscal year of INR 13.58tn. The RBI has already had to indulge market participants with various support/liquidity operations such as Operation Twist and the GSAP.
• Forwards indicate USD/INR will open around 72.61, the pair will soon run into strong resistance at around 72.30 with talk of bids down to 72.27. The prospect of increased borrowing and additional government support for the bond market will affect INR too. Citi notes "the RBI will not be able to conduct large OMO/FX intervention, allow interest rates to move up or INR to appreciate if it wants to repeat the transfer of a large dividend next year too. Meeting all three conditions simultaneously will be a key policy challenge."