RBI Das: Confident of handling higher inflows from JPMorgan bond index inclusion

The Reserve Bank of India (RBI) is confident of handling the increased foreign inflows into Indian government debt once they are listed on JPMorgan's bond indices, Governor Shaktikanta Das has said.

"If you go by our track record, RBI has managed both when there are outflows and when there are inflows. In both the situations, the Reserve Bank has got an excellent track record in managing the flows. And going forward, even this year also, we are confident of handling the higher expected inflows. As and when such a thing materialises, we will be able to deal with it," Das told reporters in New Delhi on February 12, adding that market participants had told the RBI that some inflows had "already come in".

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The central bank chief was speaking at the conclusion of the meeting of the RBI's central board of directors. As is custom, the post-budget meeting of the RBI's board was also attended by Finance Minister Nirmala Sitharaman, who addressed the board members.

JPMorgan, in September 2023, said that Indian government bonds will be a part of its Government Bond Index-Emerging Markets (GBI-EM) global index suite from June 2024. This is expected to result in inflows of around $25 billion into Indian sovereign debt over a 10-month period. This increase in demand for Indian government bonds is widely expected to result in a fall in yields, particularly with the interim Budget for 2024-25 showing that the Centre plans to only borrow Rs 14.13 lakh crore from the market next year through the issuance of bonds on a gross basis to finance its fiscal deficit.

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Yield on the benchmark 10-year bond closed at 7.09 percent on February 12. Economists see it falling well below 7 percent in 2024-25. Das, however, refused to comment on the impact of bond yields from the index inclusion.

"As you would appreciate, as a central bank governor, I would not like to say whether bond yields will go up or go down because that is a signal to the market. We don't like to interfere. The rates should be decided in the market. The Reserve Bank cannot and should not (interfere)," Das said.

However, the governor did say that the central government's reduced borrowing – from Rs 15.43 lakh crore in 2023-24 – is a key development and is one of the inputs into monetary policy.

"The lower quantum of borrowings is growth inducing and it has some positive impact as it would help stabilise inflation. How much it would help, I wouldn't like to quantify," Das said.

More broadly, reduced government borrowing would mean more resources are available in the banking system for the private sector.

At the meeting today on February 12, Das said members of the RBI's board congratulated the finance minister for presenting a "responsible" Budget for 2024-25.

The Centre has set itself a target of reducing the fiscal deficit to 5.1 percent of GDP next year from this year's revised estimate of 5.8 percent.

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When asked to comment on the government's debt-to-GDP ratio, Das said it is for the government to take a call on level of debt is sustainable.

"RBI is the debt manager of the government and whatever view the government takes with regard to their borrowing requirements, RBI's responsibility is to ensure a smooth, non-disruptive completion of the borrowing programme of that particular year," he said, although he added that the debt-to-GDP ratio should moderate as the fiscal deficit declines.