RBI Soothes Issuance Worries

Bonds are expected to be supported today by a number of factors including the GSAP announcement and borrowing plan. The short end in particular is expected to be supported after the RBI kept the borrowing programme for the first half of fiscal 2022, the FinMin had said in May that borrowing would be increased in order to provide support funds to states. Instead, the government released INR 750bn from its own borrowings to compensate for a tax revenue shortfall.

• The Central Bank announced eligible issues for the next GSAP operations yesterday, the RBI will purchase INR 200bn on July 22 and this time has included illiquid paper, a major criticism of the previous operations. Purchases will be from 6.18% 2024, 6.97% 2026, 8.20% 2028, and 6.79% 2029 issues, which combined have accounted for around 10% of trading volume this week.
• Elsewhere, the latest RBI bulletin was upbeat on the economy: "The tapering of the second wave, coupled with an aggressive vaccination push, has brightened near-term prospects for the Indian economy. While several high frequency indicators of activity are recovering, a solid increase in aggregate demand is yet to take shape. On the supply side, agricultural conditions are turning buoyant with the revival in the monsoon, but the recovery of manufacturing and services sectors has been interrupted by the second wave. A pick-up in inflation is driven largely by adverse supply shocks and sector-specific demand-supply mismatches caused by the pandemic. These factors should ease over the year as supply side measures take effect."
• As a reminder RBI will sell INR 320bn of debt at auction and conduct INR 200bn of 14-day reverse repos today.