Union Budget 2022: Govt borrowing plan may prompt reverse repo hike

15-40 bps raise likely in MPC meeting next week, say market participants

The huge borrowing programme announced by the government in the Union Budget on Tuesday may prompt the Reserve Bank of India (RBI) to hike the reverse repo rate in the monetary policy meeting next week, market participants said.

The government announced a gross borrowing of Rs 14.1 trillion and net borrowing of Rs 11.6 trillion for the next financial year – way above the market’s expectations. This may force the central bank to go ahead with its policy normalisation plan. 

The RBI has already started normalising liquidity with the withdrawal of the government securities acquisition programme (G-SAP) and tightened short-term