Government borrowing non-disruptive so far: RBI

A large part of the government borrowing programme for the financial year has already been completed and the process has been fairly non-disruptive, said Reserve Bank of India Deputy Governor Shyamala Gopinath in Mumbai today.

“We should look at overall outcome of the borrowing programme, right from April 1 to now. That’s the way to look at it, and not how a few traders look at it,” she replied to a query regarding bond dealers’ concerns about rising bond yields.

Gopinath was speaking at the launch of interest rates futures trading by the National Stock Exchange (NSE) today. She said open market operations (OMO) was one of the options to prevent a large rise in government bond yields and that there was plenty of liquidity in the system.

“We have already announced Rs 80,000 crore and we have accepted 70 per cent in the OMO auctions. And we will continue to do as earlier envisaged,” she said. Separately, Deputy Governor KC Chakrabarty said RBI was likely to reverse its accommodative monetary policy stance when concrete signs of revival in growth emerge alongside price stability. “When the fiscal situation improves, there is price stability, and we have sustainable growth, we will reverse the expansionary policy stance,” he said at a seminar organised by Indian Institute of Banking and Finance in New Delhi.

Since October, the central bank has cut repo rate by 425 basis points (bps), reverse repo by 275 bps and Cash Reserve Ratio by 400 bps to infuse liquidity into the system. Chakrabarty said the challenge before the central bank was to maintain price stability without comprising on growth. “You must understand that food price inflation is already 10 per cent. So keeping inflation low without disturbing the growth momentum are the key challenges before RBI,” he said. Chakrabarty said the current drought situation was a major challenge, and it needed to be tackled effectively.

“If there is a drought then there will be some impact on growth. If agriculture gets affected, automatically it will have an impact on overall growth,” he said.

However, he maintained that the economy would grow over 6 per cent in the current financial year despite the drought. Asked if interest rates could fall further, Chakrabarty said, “It is unlikely that it (interest rates) will fall further.”